Ruh Roh on Rausch?May 25, 2023
Purchased for $880,000 in May of 2019, establishing a new “comp” for other neighborhood sales and valuations at $1,410 per square foot, the 624-square-foot, one-bedroom unit #502 at 99 Rausch features floor-to-ceiling windows, a modern galley kitchen with high-end appliances, and a south-facing patio off the condo’s living room.
Located in “the heart of SoMa,” residents of the 112-unit building at 99 Rausch have access to a concierge, fitness center, owners’ lounge and meeting room, bike repair and dog washing stations, and a rooftop deck with panoramic city views, multiple grills, partitioned seating areas and fire pits.
And having just returned to the market listed for $650,000, aiming for an “over asking!” sale, an “at asking” sale for the one-bedroom unit would represent a 26 percent drop in value over the past four years. If you think you know the market for modern SoMa condos and comp(arable) buildings and units, now’s the time to tell.
Comments from Plugged-In Readers
I don’t think I “know the market” like a real estate agent, but I have been looking at SoMa condos in general lately and this is close to ground zero for the implosion of condo pricing. The target market for these are the same people leaving S.F. in droves. Perhaps the seller knows this, or is one of the people leaving, and that explains the short-term hold. Some of the amenities listed in the second-to-final ‘graph above are only worth the extra money if you have guests to entertain frequently, and those are also people over-represented among those leaving.
Using my layman’s current valuation produces a price almost 7 percent below the asking. My guess is that this won’t close in the next two months. It’ll go a little something like this:
The seller’s agent will get a lot of offers below asking and a few offers at or just above asking, the seller will conclude the “low ball pricing to incite bidding war” gambit didn’t really work and they aren’t willing to take a > 25 percent haircut, and the listing will be removed from the MLS.
Yup, this is ground zero of the “collapse” in prices. It is not as bad in areas of SF away from SOMA and in other Bay Area counties. That is why the index for condo (and home) values is irrelevant. It’s a region wide index and all real estate is local. Even within a city.
I knew investors during the height of irrational exuberance that grabbed some of the new condos coming online then. Willing to take on a big negative cash flow “knowing” the condo would appreciate substantially in a few years’ time. There will be lots of ancillary effects as we move towards lower prices before things bottom out in several years. Like property tax revenues. Condo owners will be asking for reassessments to match the new reality. The bigger hit will be commercial real estate. 350 Cali valued at 300 million in 2019 recently selling for 65 million.
Lendlease threw a Hail Mary and went forward with their massive residential/office project at 30 Van Ness. It is set to complete in late 2025 which may just be about the time prices bottom out. They are very likely to take a big hit on the project. By then Twitter will likely be gone from mid-Market and that area could have a 45% vacancy rate. At least Lendlease agreed to only 80 or so BMR units so it could have been worse.
Okay, but you left out the fact that Lendlease purchased that property from The City in 2017 at a significant discount in exchange for those affordable units. I don’t think it’s obvious that they “are very likely to take a big hit on the project”, as they are financing that project themselves and don’t have to deal with the same constraints as other developers.
the neighborhood has also gotten dramatically worse in the past 4 years. paying $650K to see people shooting up on your doorstep every day, and being afraid to go out at night, is no longer in fashion
Sad, but true.
A little while back at least you could hit nearby Cellarmaker and get some good if not great brews to work up a rausch (pun intended) – no more, they closed.
You don’t way to pay extra for a dog washing station?
Looks like affordable housing is still in the pipe after all.
But you got to consider other facts: this building is in litigation against the contractors and there is a 2 year wait on ability rent. It’s probably harder to get financing for 1st time buyers.
Nvidia, the company performing better than just about any other, is probably the most supportive of work from anywhere (see name link), with no requirement to come into the office, ever. This just completely smashes the recent assertions by a few visible CEOs (who probably have more to lose if the banks fail from commercial real estate losses, and thus want to try to talk up offices in general) that companies work better in the office. They all should be performing as well as Nvidia. And Nvidia is hiring, if your CEO still didn’t get the memo, unlike most other companies, that are laying off, including another round of 10,000 at FB this week.
How this place ever sees $1Kpsft again is probably more a function of inflation than demand.
Absolutely. Not helping is that higher paid jobs tend to be those more amenable to remote work which some employers are using as a perk to attract talent. It’s hard to say when and at what price/psf condos and housing will bottom at but it won’t be pretty. Unlike previous downturns the pricier neighborhoods won’t be more immune to the downturn this time. Some cities are marketing themselves as ideal for remote work (Oklahoma City for one) as this modern day “horse a buggy” phenomena transforms how we work and where we work. It’s actually a more sustainable model than what has been the norm for decades now.
SF’s future is TBD. Downtown which at one time doubled in population during the day and supported a myriad of restaurants and shops and experiences is not coming back – someone with a unique vision is needed to point the way towards a viable future for the City. Breed is trying but is not that person. Nor seemingly any of TPTB. The supervisors met with Breed for a Q&A at UN Plaza recently. They got shouted down by protestors and had to cut the meeting short. Sadly, they were the “wrong” kind of protestors – folks who oppose more police/policing.
It is up to the voters/ citizens of SF the direction they want the city to go by their votes. I’m staying tuned as a former SFer who doesn’t really want to come back to visit because of the absolute decay that is taking over.
Meanwhile the competition down San Tomas is laying people off, varying by business unit. It’s curious how cuts in head count correlate with return-to-office requirements for each BU, further suggesting that businesses in the sector that grow tend to not have people come back to an office. And growth’s needed to ramp SF RE. Quite the conundrum. To quote John McCain: “These jobs are not coming back” and along with it the people
AI is being positioned as the fuel for a new stock market hype cycle. If AI does what its sociopathic advocates tell us it will, highly-compensated, recently-degreed symbol manipulators will become obsolete.
Maybe androids could be warehoused in the thousands of current (and tens of thousands of future) vacant SOMA units?
Developers, take note!
No doubt. What the main flavor of AI these days, ANNs, actually can do, and what we’re going to get sold on – two vastly different things. Waymo and Cruise will look like the most responsible of players among an emerging army of gold diggers.
At $800/sq ft this would price at 499K. I can’t imagine paying more for that block. It’s not the worst, but far from the best.
Your estimate would constitute a 43.3 percent decrease in value over the past four years. I don’t think the seller would accept such a loss (see my comment above in this thread), but if it actually closed at that price, it would portend bad things for the 1 bed, 1bath unit on a lower floor that’s been sitting on the market since late February in the same building.
I’m sure you’re right, it won’t go for that low. But I know of a nice 2 BR loft right around the corner at 73 Sumner that sold for about $835/sq ft last fall, and I don’t think it went at the bottom of the market. But hey, the market is whatever someone will pay.
Also brand new modern-looking units are listed around $800/sf at 588 Minna, right from the developer.
Thanks for that info. You almost convinced me to revise my guess to $803 per ft.² which would mean a $501k sales price for this place. But I think the best comp from the building you pointed us to would be 588 Minna St. Unit 505, a one-bedroom unit on a similar level, (offering fewer building amenities) which closed earlier this month for $851 per ft.² after sitting on the market since the Fall of last year.
I’ll revise my guess to $516k for this place, which would still be a 41 percent decrease in value over the past four years. A pretty big hit to the seller’s finances, if it actually closes.
My guess – it will sell at asking or a little under. Though going forward who knows – it could drop to the low 500s. Just depends – can SF come out of the “doom loop” or not?
The Financial Times just did a piece on this. Their worst-case scenario:
“How does the “doom loop” theoretically play out? Remote workers never come back, driving down the value of office space and leading to the shuttering of more businesses. Political infighting among progressive politicians continues, keeping the city from making concerted progress on the homelessness, violence, drug use. The city’s tax base shrinks further, exacerbating a projected $780mn budget deficit over the next two fiscal years and withering vital public services.”
The FT piece comes as Old Navy announced it is shuttering its massive 4th & Market store while at the same time Banana Republic announced the closing of its Westfield Mall store and the Ikea opening at 5th and Market looks iffy now.
I wouldn’t read too much into anything Gap does. That company has been in terminal decline for a decade. Remember the blue square logo fiasco?
And I wouldn’t read too much into the FT article …in any sense of the word: a fine exacmple of what I call a “clippings” story – you go around and clip paragraphs from newspapers and then put them together, sort of like a scrabook – which will do well to get you promoted to sixth grade; but pretty much an embarassment to one that is putting a lot of effort into trying to seem like some kind of SV expert.
Mainly, tho, the shortcoming is it teased us by asking the question, but never bothering to answer it: what if the doom loop doesn’t end??
Or maybe the answer is obvious.
Don’t you hate it when they leave something dangling like that. Yahoo did a similar piece very recently and their article broached the ‘d’ word – deconstruction as in “take stuff down”.
The latest brainstorm – more the latter than the former, perhaps – is to have SF declared a UNESCO World Hertiage site. “Think about the pyramids in Egypt,” was the comparison offered up, apparently with a straight face; specifically its LGBTQ heritage (Who wants Cheops when you can have the first ‘Drag Laureate’?)
Okay, you two moved me to go and read the FT’s piece. They did some actual reporting, which was refreshing in these times of journalists writing five hundred word pieces about what Elon said on Twitter that day.
They talked to named individuals on the record from Urban Alchemy, a tech company founder whose 10-month-old accidentally ingested fentanyl he found at Moscone Park, new District Attorney Brooke Jenkins and at least attempted to talk to Marc Benioff. One of the reporters comes right out and says they were the victim of three separate non-violent crimes during the week they took to report out the story.
The second most interesting thing I thought about the framing of the overall piece was that they went on and on about drug abuse among the homeless, but when they followed the now-obligatory mention of the stabbing of Cash App founder Bob Lee with a single parenthetical about the truth turning out to be “more complicated than it at first appeared”, omitted that Bob Lee Had Cocaine and Ketamine in His Body at the time, according to the autopsy and that he and his attacker knew each other.
The most interesting was that there was very little there about the impact of emptying office space and what was could have been cut-and-pasted from any other real news story about commercial real estate lately. It was mostly about San Francisco social problems without much thought given to what is driving those issues.
There were too many quotes from venture capitalists as representatives of “Silicon Valley luminaries” and as Notcom says, some of them were taken from other news sources.
It was worth reading, but I expect more from a news source that calls itself The Financial Times.
It also contains bit of hyperbole-approaching gibberish – ….The cycle repeated itself through the devastating earthquakes of 1906 and 1989 (emphasis added), Nordstrom opened up “on the edge of skid row”, the population has become “overwhelmingly white” – which people who actually live here would call out as nonsensical (and in the latter case simply untrue).
In short, I found it to be like a lot of their writing about SF/BA/CA: the clueless newbie who thinks that s/he’s become an expert. What the accuracy of the writing is for cities where they really may have expert knowledge I can only guess.
“access to a concierge, fitness center, owners’ lounge and meeting room, bike repair and dog washing stations, and a rooftop deck with panoramic city views, multiple grills, partitioned seating areas and fire pits.”
Oooof, I bet that is a nasty monthly HOA.
For this unit it’s $665/month, which doesn’t feel that pricey for all that.
Gotta ask why anyone with alternatives would want to live in a tiny, expensive space in SOMA.
That might have worked when the gold rush was on, but the gold rush is not on any longer. Tech is down hard.
Maybe because the single family homes on the peninsula are still so expensive, out of reach of most let alone many single bachelor(ettes), and they don’t want to live in an older building or the East Bay? There still aren’t many other options.
Agree with the first sentence, but that last sentence is a bit overwrought, you sound like you haven’t been keeping up on current events.
The unprecedented increase in valuation for companies such as Nvidia (as pointed out by other commenters earlier in this thread) last week and Microsoft a few months ago just after they announced the incorporation of ChatGPT is going to kick off the next phase of the tech gold rush, focused on AI. There’s going to be lots of AI startups coming along in the next few years, riding the hype cycle. The amount of money that’s going to come out of Sand Hill Road focused on that area is going to be larger than the amount (wasted, IMHO) directed at cryptocurrencies.
Now, whether or not those companies decide to get office space in or close to SOMA, and then reignite demand for overpriced dwellings in the area, that remains to be seen.
999 Green Street #2905 has been sitting at 35% off its 2015 price.
Correct me if I’m wrong but prices went up more than 2% per year between 2015 and 2019, which would mean 999 Green is off more than 43.3% from its value of 4 years ago.
And since 999 Green was lowered to that price two weeks ago, Facebook laid off 10,000 people, Banana Republic closed its Westfield store, Old Navy announced the Flagship downtown store will be shut down July 1, and State Farm has stopped writing new California homeowner insurance policies entirely. So it’s not like it’s gotten any better. San Francisco lost more people in the last 3 years than Baltimore did in ten years from 2010-2020.
UPDATE: The list price for 99 Rausch #502 has just been further reduced to $615,000, a sale at which would be “at asking!” according to all industry stats and aggregate “market reports” but down 30 percent on an apples-to-apples basis.