Two Years And 25% Later, The Next To Last Infinity Penthouse Sells
September 14, 2010
Last listed for $5,800,000, the sale of the 3,329 square foot 338 Spear #42B closed escrow on Friday with a reported contract price of $5,200,000 ($1,562 per square).
And while not apples to apples, as J.K. Dineen notes, the sale of the Infinity Tower Two penthouse represents a discount of roughly 25 percent from what “G” paid for his similarly situated and sized tower one penthouse in 2008 ($6,900,000 or $2,056 per square).
The sale price discount shouldn’t catch any plugged-in readers by surprise, however, for as we noted in May, the list price for 338 Spear Street #41B was reduced $1,900,000 (26%) to $5,450,000 ($1,637 per square). It remains listed at that price.
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This is really a blue chip investment, and Infinity is a terrific building. One could argue that there is upside to buying the best unit in a premium location. One could also make the case for more compelling arguments at Millennium Tower in this price range or less. Although I’ve sold far more units at Infinity (40+) than at Millennium Tower (2), I feel at this price point Millennium Tower may comp out more favorably. Still the best unit, in the best location (Infinity D42B) seems like a sound buy and hold as it will be reflective of the upper 1% income demographic of the Bay Area. i.e. If the upper end of incomes increase, D42B should follow.
This unit is not for everyone, so do not flame me with lame “this apple is turning into lemons” rhetoric. People who aquire properties like this do not have their lifestyles affected by aquiring a property like this.
“If the upper end of incomes increase, D42B should follow.”
Man, I wish it were that simple. That’s one piece of it. Another piece is how badly people who purchased other properties at the highest income ranges need money.
Say for example, purely hypothetically of course, that interest rates stayed very low for “an extended period”. People who bought upper crust properties would start selling them because they no longer were earning enough interest on their savings to support their lifestyles. Or maybe their kids have been out of work for 99+ weeks and need money to live on.
So they start selling assets to raise cash to spend. Someone who has ten properties in ten cities will start selling some of them. Especially now that they have stopped appreciating and there are other areas (China) or asset classes that will do better.
You get the point: just because the upper incomes rise doesn’t mean that all assets they might buy will do so. There is demand, but there is also supply.
If income and population increase significantly (100%) in the top 1% of incomes in San Francisco, so will this property.
There I said it. And yes, it is that simple.
I guess it doesn’t really matter, because no one buying this property is buying it as a pure investment anyways.
Someone who can pay $5 mil + (and this is the 2nd Infintiy unit they have purchased), knows how to make money and certainly realizes there are sounder purely financial investments out there.
Also I am sure that anyone who buys such a property is not affected the least amount in lifestyle by purchasing it.
Paul,
Let me disagree with your statement. It the top 1% does improve but the bottom 99% keep having another bad income decade like the 2000-2010 period, this won’t appreciate much. Each segment is influenced by its upper and lower neighbors. Valuations are usually stickier at the top (can wait) and volatile at the bottom (can’t wait). In that way the segments are directly disconnected, but the loose connection is there, as proves the current softness in buyers and offers. Many investors looking for ROI or flips are hunting the Central Valley or other depressed areas like crazy. Cash has a way to travel today. Of course there’s still demand, and cash, in SF. I am not that stupid. But a change in the number of buyers has a big effect with what’s on the ground. 2000 buyers with 1000 houses: good for sellers. 750 buyers with 1000 houses: good for buyers. 2000 buyers with 1000 houses but limited financing: stalemate.
This WE at open houses I saw way more skinny pants than gray hair. I interpret it as more debt-driven purchase than cash. Maybe I am wrong.
“If income and population increase significantly (100%) in the top 1% of incomes in San Francisco, so will this property.”
Paul, you don’t seriously believe that, do you? As tipster noted, you’re ignoring the supply part of the supply-demand curve.
What about if income and population in the top-top income bracket declines?
This place is a great place to live — no doubt. But as an investment? Not a good one. Just ask G.
lol,
You may be right under $800K, but not at $5 mil+. There is no debt or it’s cheap money.
Of coarse you bring up a good point, I could be totally wrong. The future is uncertain. But therein lies the opportunity.
Milkshake, check out the Scottish ales at Bar Crudo. Excellent and a great complement to the food which is also fabulous. Working For Tips is great! Firestone 13th anniversary is my second choice.
I think the market for an Infinity Penthouse unit is an unmarried silicon valley youngster who hit it big and wants a super cool place to park a maserati. School loans paid, parents’ mortgage paid, etc… This is “cool” until the next sleek tower builds. This is someone who is too young (short time on this planet and short time being rich) to want to live on a SF hill. If I were this guy, the competition would be a unit in a hotel condo. More service, and more impressive to the ladies.
A.T.
My hypothesis is based on the top 1% of incomes doubling in income and set size. Not the other way around.
And as I have stated previousely, logic would show that this is not a purely financial transaction.
Also there may be some tax considerations in play also.
good point suspicious.
the lady and dude factor.
Paul, you seem to be ignoring that another near apple unit is now down 25% based on that comp. That was also an investment, and was apparently a quite poor one, as it will take quite a while just to break even.
If your point is that someday in the future properties will be worth more than the are today, sure, that’s a given. If you are trying to say that this is a great investment right now, then I think you are gravely mistaken.
A.T.
In asnwer to your question regarding G. I am sure G is disappointed by the performance of his unit. But did he benefit financially from it?
Absolutely.
In my mind he receieved more than $5 mil in publicity and advertising by owning this unit. He appeared on Oprah, some Secret millionaire show,magazine articles, tv interviews, sold books, increased his twitter following and exposure in the valley. Anyone thats been here for a few years knows that the Street and the Valley love a good story.
Before he bought at Infinity I didn’t know who he was. Did his notariety translate into higher book sales, business opportunities or company valuations?
In my opinion, it absolutely 100% did, and by a wide margin to the nominal delta of the unit.
Paul
lyqwyd,
I didn’t say it was a great financial investement.
Although in the case of G, I do believe he benefitted financially from owning it, becasue he leveraged it to increase his exposure in the business world. See above.
Paul
OK, Paul, I see where you’re coming from. As to your premise, that SF’s extremely wealthy will double both in size AND incomes, why would that happen anytime soon? Stock and bond market returns are low. Marginal income taxes will be rising substantially on high income-earners. The economy generally is mired in a terrible downturn. Ain’t happening.
But even if it did, you can’t just ignore the supply side. Here is an illustration. My wife and I don’t drive much, maybe 4000 miles/yr. But when we do, we do so because that is the best way to get where we’re going. The cost of gas to me is irrelevant. I couldn’t care less if it went to $20/gallon. I would not drive a mile less. However, if gas at the Arco station is $2.90/gallon and gas at the Chevron station down the street is a dime more, I’m buying it at the Arco station. I’m not stupid and neither are people (generally) in the top 1% of earners. The demand is there (from me — a single buyer like your hypothetical home buyer) but the supply/competition keeps down the price I will pay. For price purposes, demand only has any significance when applied to the supply curve. A single willing buyer does not the market make.
A.T.
You bring up a good point, but your comparison to a spot market commodity to a unique tangible asset is flawed. You should compare this to a blue diamond, a dino or van gough painting. There is only one in San Francisco.
I don’t dispute the future is uncertain. That’s been my premise my whole life.
Paul, I think you estimate of the value he received is insanely overinflated ($5 million buys a LOT of publicity/advertising), and you seem to forget all the other buyers who didn’t get any publicity, but still had their property values drop, plus all the buyers who suffered directly from the whole “G” thing.
Lastly, it doesn’t seem like it was very valuable publicity, as the only detail I remember of the whole story is that he just seems like a jerk.
Where Paul is “coming from” is that he makes a lot of commissions from Infinity, and these high end units are moving so slowly (if at all), some of them boost the already high commissions.
So OF COURSE they are a great investment, and even if you lose over a million dollars in two years the publicity is priceless, etc. He’s going to say anything for those sky high commissions.
lyqwyd,
If anything, a national advertising campaign that has lasted over 4 years would be exponentionally higher in cost. You brought up the subject of G, I was just stating my opinion on his unit and your topic, not everyone else’s unit. Unfortunately I do not have time to dissect 650 transacitons at the moment.
As far as bad publicity goes, I get slammed constantly on this board by crazy people. Why do you I think I continue to post? Think about it.
tipster,
Thank you for clarifying. I cannot argue with that kind of logic.
Don’t hate the player, hate the game.
Paul
I think someone is trying to get themselves a reality TV show. Lame.
I did not bring up the subject of G, I didn’t even mention him. I pointed out that the property he happens to own is worth about $1.75 million less today, than it was two years ago, you then made the ridiculous claim that he got $5 million in “publicity and advertising” which consists of a few articles that hardly anybody read, and far fewer people remember, or care about.
I suspect he would rather have his equity back than the so called “publicity and advertising”… and I’m sure his neighbors would rather have their equity back.
lyqwyd,
Sorry you are right, you did not mention G, I misread your post. You are correct that his unit is worth less today than when he purchased it.
I disagree with you on the overall financial benefit Mr. G has gained from owning the unit.
OA,
If you are in business for yourself, specifically in Sales, and you do not want a reality TV show, well there is something wrong with your business model.
Do you think Rex Ryan wants to be on HBO every week? No way. His bosses are making him do it because it translates into television reveneues, ad revenues and Revis jerseys.
Paul – it is a reach to think that a condo purchase can result in $5M of publicity and other intangible benefits. G is a consummate self promoter and would have purchased his 150 minutes of fame with or without a a prestige home.
Thanks for the Bar Crudo rec. It has been on my list for a while and their good ale selection now bumps it up several notches. As for Scottish ale, I’ll be fortunate to try the real deal next week when in Edinburgh. Expect report back on the market for 19th century stone mansions when I get back. And maybe a comment on the best 80/- pint as well.
This thread is hi-la-ri-ous!
First, Paul offers us this pearl: “This unit is not for everyone.” We should understand this to mean “Paul finally found a brain-dead customer who didn’t care about burning money.”
First it’s about an investment that will do well “if the top 1%” somehow gets richer and there’s a run on penthouses. Second, G got a great return on his investment because of all the publicity, as though notoriety were somehow unavailable w/out real estate or for less than the 20% he sent to money heaven by buying his pad at sinking towers.
But then there all the Scottish Ales at Bar Crudo to think about while you mourn your money…
Paul, I give you credit for keeping those pom-pons in the air. Even now, when it emerges that the only thing infinite about the Infinity is its capacity to lose money for owners, you do your best to keep up appearances. Good on you.
Yo Embarcadero,
Big ups, thanks for the props.
Paul
“the only thing infinite about the Infinity is its capacity to lose money for owners”
love that quote!
Not infinitely, only a mere 7 figure paper loss. No biggie. It’s better than wasting your money on rent!
“if the top 1% of SF incomes doubles in size and income” = penthouse condos will increase in price
is analogous to:
“if we somehow harness magical unicorns” = we can stop importing crude oil
Why are we arguing over some stupid hypothetical that Paul pulled ex rectum? Paul is trying to suggest that an overpriced penthouse is a good investment, but again, we shouldn’t view primary residences as an investment. Paul is also saying that somehow 1.6M people will live in the city and county of San Francisco under his ridiculous hypothetical. Will the NIMBYs even allow that?
“it is a reach to think that a condo purchase can result in $5M of publicity and other intangible benefits”
Agreed. Another ex rectum comment from Paul with no concrete basis.
The only person getting $5m worth of advertising from this commentary is Paul Hwang.
“You should compare this to a blue diamond, a dino or van gough painting. There is only one in San Francisco.”
More flawed logic. While housing is not as fungible as gas, it is still basically a commodity item in the sense that for any particular buyer there are many, many choices on the market that are all substitutes for one another. The buyer who is only interested in a single home — i.e. zero elasticity or a vertical supply curve — exists solely in the minds of realtors.
Paul can’t make up his mind:
today:
You bring up a good point, but your comparison to a spot market commodity to a unique tangible asset is flawed. You should compare this to a blue diamond, a dino or van gough painting. There is only one in San Francisco.
earlier this year:
The determination of value is only good at that exact moment in time. Real Estate is a spot market.
https://socketsite.com/archives/2010/01/the_222_second_street_scoop_for_the_second_time.html
I might also add that bubbles affect the art world too. The Japanese caused a huge bubble until 1989, and the recent boom caused a bubble from which experts think prices dropped 40% (http://www.economist.com/node/14941181).
Is that $5mil in publicity the value of the attention he gained, or the potential cost of fixing the negative perceptions of him and other RE “professionals” that might come from reading a blog like this one?
I understand that Paul’s livelihood comes from convincing people to buy places at vastly inflated values that cannot be sustained even in the short term. But the future of the market depends entirely on getting sellers to have more realistic expectations. It’s the only way to find the bottom of this market and start digging out.
“Sell now or be locked in forever!”
I’ve never felt compelled to post before but Paul’s comments make me sick. Paul, I too am in “sales” (in addition to having a successful career as a real estate investor) and your comment about wanting to be on a reality show gave me the chills. The kind of chills that come on when you plumb the depths of someone’s megalomania. I can’t believe anyone works with you–I mean that sincerely and not as a jab.
It kills me to say this, but I think Paul is making a lot of sense here. This is what we call a “trophy property”, and IMO people buy them to show that they made it, to entertain, etc. There’s value in knowing that people will try to be your friend just so you’ll invite them to parties at your place. Can we quantify that? Probably not. But it’s got to be worth something to people operating at this level. They might even (were they being analytical about it) consider it a marketing expense…
firsttimeposter,
What is the big deal? If you were a business owner, why wouldn’t you want the most exposure as possible? I’ve never met Paul, and although I may not agree with everything he say’s, I see no problem with someone who gives their opinion.
This is a “Pinnacle Unit”. Very few like it. For some people, it’s not all financial.
@Po Hill
I don’t think there’s much argument with the idea that there are rich people who make trophy purchases, but Paul started off with “This is really a blue chip investment”. To me that implies that it is extremely secure, and high value investment, which does not seem to be supported by any evidence as far as I can tell. My understanding is that’s what is being debated here.
What do people think the value difference of a penthouse on the top floor vs. a “penthouse” on the second to the top floor? Are they both blue-diamonds? No matter the size, there is still someone else on top, entertaining…41ph gets stuck listening to the high-heels. I think when it sells, it will go for under $4m, which they should be happy to take if offered.
lyqwyd,
no one on this blog has any evidence. that comment is just his perspective.
While it does make sense that people would buy a property for its trophy value, that argument is diluted in a city loaded with trophy properties. We must have seen at least a 100 such examples for sale here on SocketSite. Bay area trophy properties aren’t hard to find in SF.
or Marin
or San Mateo Co.
or Napa
or the East Bay
or the South Bay
or even Fairfield
If you have the money, it really isn’t that hard to nab a property and brag that you have “this awesome place in San Francisco” with the photos to back it up.
Best. Thread. Trolls baiting trolls. My new favorite sport.
I’m calling this an Apple and -25% hurts no matter how much money you have in the coffers.
$1,562 ??
$1,562. per. square foot.
Wow.
I paid around 1/3 the $/sqft.
Granted I’m more than just a couple floors below the penthouse, but still – that’s quite a markup for the privilege of living w/ no neighbors above you.
Overpaid.
sfrenegade,
Comparing the price of gas to a unique property in a unique city is flawed logic.
Property is worth what someone is willing to pay for it at that exact moment in time.
Paul
“do not flame me with lame “this apple is turning into lemons” rhetoric.”
i find your own rhetoric lame.
“Property is worth what someone is willing to pay for it at that exact moment in time.”
Paul, this is simply false. Leaving the gas analogy aside, if someone is willing to pay 5 million for a home, but there is a comparable substitute available for 3 million, that buyer will buy the substitute. The first place does not have a “worth” of 5 million even though a buyer may exist who would be willing to pay that, because there are lower-priced substitutes available — the supply side of the equation affects the “worth” as much as the demand side (see, it really is no different from the gas analogy). Your “market of one” theory is a realtor shibboleth/falsehood. As Milkshake of Despair notes, there are lots and lots of substitutes for any property out there. Perhaps you have heard of the concept of “comps.”
Once again, Paul. Make up your mind. I think you’re just throwing everything at the wall and seeing what sticks. I really don’t think you know what a blue chip investment is, especially if you have to fabricate impossible hypotheticals to justify it.
Back to the property, what do you think the discount is for Unit 41B for not being an actual penthouse? $100/sqft? $200/sqft? $300/sqft?
infinityresident @9:18 PM, to be fair, I assume your floor doesn’t have the same stacks as the “penthouse” floors, does it?
Why bother trying to analyze any of his spin? Have you forgotten this gem by the same genius? “real estate is a very efficient market”
Thanks for the quote, J (see URL). I had never seen it before. Real estate is likely the most inefficient market that most people deal in.
Thanks for the quote, J (see URL), as I had never seen it before. Real estate is likely the most inefficient market that most people deal in.
A.T.
If someone pays $5 mil it’s worth $5 mil on that day. If he turns around and sells the property the next day for $3 mil the next day then that’s what it is worth.
Paul
sfrenegade
“investement” was probably a poor choice of words, I meant property, as in blue chip property. A good investment is different for different people.
Paul
“If someone pays $5 mil it’s worth $5 mil on that day.”
Yep, but that’s not what you said before. You said “Property is worth what someone is willing to pay for it at that exact moment in time.” Two very different things. The former implicitly accounts for supply and demand. The latter ignores the supply component. Glad to see you’ve come around!
A.T.
It’s different? Someone pays $5 mil (i.e. they are willing to pay $5 mil), it’s worth $5 mil at that exact moment in time. How is that different? I don’t understand.
Paul
I think AT likes to sit around and contemplate his navel if he finds a distinction between what someone is willing to pay, but for lack of supply, AND what some actually does pay. Don’t worry about the haters Paul, everyone knows you’re the best broker in South Beach! Props for having no fear to post your opinion on this board.
what it really means is that you can never overpay for a property because it is actually worth however much you are paying for it, so no purchase can be “a bad deal” under this definition and therefore it dismisses all criticism that RE agents have any role in people paying too much and losing money from real estate.
If someone pays $5 mil it’s worth $5 mil on that day. If he turns around and sells the property the next day for $3 mil the next day then that’s what it is worth.
Wow, I guess this sums up how RE agents determine the value of any given property. The role of the agent is simply to be involved in both transactions resulting in a commission on $8,000,000. Everything else is BS and a means to that end.
Paul, now you’re just playing dense. Suckafreecity gets the distinction although he appears to pretend it is not real.
Recommend Economics 101.
On how the comfortably rich live and always have, recommend the new book TRUE PREP, 2010, by the author of THE OFFICIAL PREPPY HANDBOOK, 1980.
This apartment is not preppy.
Household net worth fell 1.5 trillion last quarter. Although an infinity penthouse might keep appreciating due to higher incomes, it’s not really looking that good for the average market. There are maybe 100 million households, so people on average had about $15,000 less in the second quarter than they did in the quarter before. On a blend of 3.5% FHA loans and 20% down other loans, that means home prices have to fall about $150,000 on average, to compensate for the reduced down payments.
Not looking good. Not looking good at all.
But there IS a silver lining: because more underwater homeowners are getting foreclosed, the percentage of owners equity rose, at least while the government propped up prices in the second quarter!
http://noir.bloomberg.com/apps/news?pid=20601087&sid=atoiaToHNAIA&pos=4
And from the same report:
-Real estate bucked the trend by growing by $126.5 billion
-Household net worth had regained about $6.2 trillion in value during the previous four quarters
http://money.cnn.com/2010/09/17/news/economy/household_net_worth/