The Hong Kong-based SRE Group has purchased an 80 percent stake in the eight-story parking garage at 75 Howard Street, a waterfront site which is fully approved and permitted for a 20-story, 120-unit condominium tower to rise.
And according to the Business Times, the price for the majority stake (and entree into the U.S. market for SRE) was a record smashing $110 million and over $1 million per entitled unit. That’s around twice the previous per unit record for major land deals in San Francisco.
Foreign developer selling to foreign buyers, welcome to America 2017. Nothing against foreigners by the way, my family are immigrants, but it is a reflection on the current states of affairs. If you want to see what’s driving SF real estate just take a look at $BTCUSD. Meanwhile that Snapchat earnings call might have closed the door for a lot of local tech IPOs.
please. market is very strong, tech is very strong, the issue with SNAP is both valuation and a no-growth business model (death for tech).
Yes I’m sure Snapchat is just an isolated incident, as are Twitter, GoPro, Fitbit, Twilio, Apptio, Hortonworks, Cloudera etc etc all trading below IPO and/or private valuation. Meanwhile Evan Spiegel called it a Fed driven tech bubble back in 2015 and is now laughing all the way to the bank after cashing out his 3% bonus. It’s different this time.
And what of Apple, Google, Facebook, etc., which are all trading at record highs and are each larger than every single company you listed?
Last quarter alone, Apple paid out a $12B dividend (i.e. roughly Twitter’s entire market cap).
Yes of course. Apple, Google, Facebook, Amazon, and Microsoft made up 37% of SP500 gains this year so far. Sounds like a real healthy economy. But we’re talking about startups. Take a look at these two charts and tell me where you think we are in the cycle.
And again, the dominance of tech in employment is totally overblown.
Perhaps that’s why home sales down south, where all three of those companies are headquartered and the majority of their local employees live, have been trending up while sales and pricing in San Francisco have been trending down, especially in the new condo market (the contract signings for which were 25 percent lower last in San Francisco year) despite the success of Apple, Google and Facebook.
And now back to 75 Howard Street…
Sabbie, you brought up the purported weakness of the tech economy, not me. I’m just pointing out the facts that it’s actually not weak.
Although if you’re right and tech’s effect on the market is overblown, the weakness of the companies you mentioned would have little effect.
Sabbie looks like bubble already burst and we are on our way back to normal?
My point is that local housing prices should not expect any more tailwinds from the startup sector, which I think was a large part of what got us to these nosebleed levels. Yes I agree we are normalizing in that regard and not crashing. But I do think housing values will correct soon based on problems under the hood with the nationwide economy and just where we are at in the cycle.
This chart is a little old, but accurately reflects the state of the startup scene in recent years. Facebook is still going strong, but the rest are garbage.
Lots of pretty colours in that chart! Too bad it’s not accurate and/or out of date.
Facebook IPO’d at $38. Today it is at 150, or 390%, i.e. well off the chart.
Similarly with Square. The chart shows their price 3 months after IPO. It’s been 1.5 years since their IPO and they are up 58%.
This seems curious. Paying a record price at a time the high-end condo market in SF is softening. Yeah, maybe they could wait for the next up-cycle, but the clock is running on the entitlement and there is not a whole lot of time they can wait before commencing construction.
Anyone have an idea of what construction costs/unit will pencil out to here? The cost/unit is already a million before ground has even been broken.
It’s really hard to see how the buyer breaks even on this.
This money flow is more about liquidity, safe haven, and skimming fees than long term profit. If you are in their position what are the better alternatives? Sitting on cash is a very poor option.
True, but there are more dynamic/profitable RE markets to plunk their money into. One issue is the entitlement – if they wait too long they loose it and have to start over. If they sell the entitlement before it lapses (in the next several years) it will very likely be at a big loss.
If you were a Chinese billionaire looking to park money in the US, you may well consider waterfront property on the Embarcadero to be a fine investment.
There are probably 20-30 of these ultra luxury buildings just in Tribeca. This would be the 3rd of this kind after Millenium and the Pacific built in the last 10 years in a region god knows how many $100M+ individuals were created in the same period. Its funny that people still cry ‘foreign money’.
Pull up the tax records for any of these new luxury buildings, peruse the owner names, then get back to us on that.
Is there any data for what percentage of owners at the Millenium are foreign as opposed to people who have done well here? (I know one couple who lives there. They are not foreigners and made all their money here)
The NAR has some data, you can search for it, but last time I posted it here it was deleted. You can also use your search engine to find a good amount of anecdotal evidence from realtors, but again it was deleted here. Some other countries that actually care about their citizens like Canada and Australia have begun to track it, and you can look at cities like Vancouver where a 15% tax on foreign buyers led to a massive plunge in price and volume. But we do have some clues, like I said you can look up the names in tax records or you could spend a couple hours in the lobby of the building.
Sabbie, you’re the one pushing the ‘foreigners are buying property’ story. I’m asking if you have data from the Millenium Tower to back it up. Not data from Vancouver, which has nowhere near our class of local wealth generation. You’re making an assertion about SF real estate and I’m asking if it’s based on data or not.
Looking at names of owners wouldn’t necessarily tell one anything about the nationality of the owner. And spending time in the lobby of the building would tell one even less since presumably foreign owners parking their money in SF real estate would not be present.
Sit in the lobby looking at people? Really? Security would remove you in a nanosecond. Even if you could stay to conduct your well-thought-out analysis, how would you be able to tell if one is an owner or renter? Not to mention which passport they used when they bought…ridiculous.
First of all, I work in real estate, and I have sat in those lobbies, I have worked on these sales. Second of all, I’ve told you 100 times there is no way to prove this assertion just like there is no way for you to disprove it, in this online forum. Anyone can figure it out for themselves if they really care to, another easy way is to just ask any local real estate professional, I am certain they will agree that foreign buyers are a major driving factor in certain segments of the local market, the downtown high rise condos being one of them.
And finally, like I’ve said before, it’s not just the percentage of foreign buyers that is making an impact. Since foreign buyers don’t have the same motivation as local buyers, they are much more likely to use the nuclear option in a multiple offer situation, thereby creating a new sky high benchmark in prices.
Wait, on one hand, you’re arguing that SF real estate prices are in a bubble (driven by tech). On the other hand, you’re arguing that it serves as a safe haven for foreign money. Aren’t these two views suggesting the opposite?
Its a super bubble when you combine the two
Clearly, they must intend upon starting construction ASAP. The only reasonable explanation is that they covet the status of a waterfront SF residential property too offer their homie clients.
Maybe, but they must love those homie clients as it appears they will take a loss on selling them these units. Or just break even. With the SOMA luster fading – the nearly new Lumina unit on the market for almost 9% less than it sold for a year ago – will their homie clients want to live here or might they prefer the status of LA and SOCAL which is going through a renaissance? The recent Redfin relocation stats show folks leaving SF – despite whatever status it may have.
Two points:
1) The Lumina condos represent the absolute top end and they are not necessarily representative for the entire condo or housing market. If the demand for Porsches falls, does it mean that there is less demand in the whole car market?
2) Relocation statistics can also be misleading. You would need to know the income level of the ones leaving and the ones moving into the city to get a better idea of possible impacts on real estate demand. Also, I’ve recently seen a report that indicates that SF population increased by 9k residents in 2016.
They’re buying this deal for further status. They’ll get a beautiful waterfront development in a booming US market as part of their portfolio. This may not make them money directly, but they’ll do better on their next 10 deals as a result.
It seems curious even though there is an 100% guarantee that 10-20 years from now, those units will be worth more? Maybe they aren’t thinking in 3-month spans?
It seems curious insofar as the entitlement window is 3 years and the clock is already running on it. They need to commence construction within that window which means coming online in 4 or 5 years when the next up-cycle may not yet have started.
What you’re missing is how unique this property opportunity is such that it’s ridiculous to think of it in terms of market cycle. There just may not be another development like it in a generation.
After the fiasco of 8 Washington, the unlikelihood of anything meaningful being done with the seawall lot opposite Piers 30-32 or upzoning of existing properties as Delancey Street, this is the ONLY new place you will be able to live directly on the SF waterfront. Frankly, Lumina has never done much for me.
It would be interesting to know what effects, if any, the recent market has had on Hills Bros. condos. They seem to only very rarely come on the market likely for the same reason 75 Howard fetched such a price.
(Very) slowly but surely this part of the waterfront is becoming a desirable place to live for those that (a) have lots of money, (b) don’t have kids, and (c) don’t read SocketSite so they don’t know it isn’t Real San Francisco (TM). It’s close to work, close to shopping, close to transport, close to dining and has both fabulous views (though of the “Other Bridge”) and good weather. As pointed out above, similar to development in Lower Manhattan. But I don’t see how it pencils out at this price, either.
Speaking of the high-end new condo market, the development of which was backed by Chinese money, a couple blocks away: Year-Old Lumina Condos Now Listed at a Loss (despite Apple, Google and Facebook hitting all-time highs).
It goes without saying, of course, that an individual datapoint is not a valuable piece of information.
Actually, it doesn’t. It depends upon the significance of said data point and its correlation with the market as a whole. Of course there is at least one index for new condo pricing in San Francisco proper.
That “index for new condo pricing” indicated prices rose 9.5% in the last reported month . . .
That’s correct. And after which, it’s only down 8.1 percent from 2015 levels and 2.5 percent year-over-year.
Oh I think there is more than one index out there: Bay Area Single-Family Home Values Hit an All-Time High.
There seems to be general plateauing, but no clear moves
That is, of course, an index for Bay Area home and condo values, which includes those pesky areas down south (you know, down by Apple, Google and Facebook) as well as across the bay (where less expensive homes have been outperforming those in San Francisco proper).
I agree. And at least one local real estate website sees fit to publish it every month.
As we note every month as well: “The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).”
And as we particularly noted last month: “The index for Bay Area condo values inched up 0.2 percent in February and is running 20.7 percent above its previous cycle peak in October 2005, but the year-over-year gain, which has been trending down since the third quarter of 2015, dropped to 1.5 percent, which is the smallest year-over-year gain since the second quarter of 2012.”
And now back to 75 Howard Street…
Whether the market is cooling or not, the price: “…over $1 million per entitled unit. That’s around twice the previous per unit record for major land deals in San Francisco.”
I think they overpaid – a million per unit before any dirt has been turned is a lot, even for the most desirable locations in the Bay Area.
What’s the average size of the unit?
120 units over 20 floors = 6 per floor
20Ksf lot, 85% lot coverage (?) 17,000 floor plate
17,000sf – 20% loss for circulation, elevator common space
13,600 of living space per floor? / 6 units
2,266sf per unit
$1,700psf selling price * 2,266sf = $3.85mm per door
$441psf dirt per story
$900psf build (?)
$359psf spread
$359 * 13,600 per floor * 20 floors = +$98mm -plenty of room to pay for web sites and agents-
I’m sure my math is wrong somehow – but where?
Maybe unimpeded waterfront San Francisco views aren’t worth $1,700psf?
ground floor will not be residential. plus underground parking garage is gonna be lots of cash.
Plus, at these projects, extensive amenity spaces – conference rooms, concierge services, rooftop garden, etc.
Your math is in the ballpark – that’s why they are doing the deal… other explanations are non-sense