Positioned as an “incredible opportunity,” with the potential to expand and redevelop the dated two-bedroom Noe Valley home at the intersection of Dolores Heights and the Mission, 3537 23rd Street hit the market priced at $1.899 million in April of 2018 and sold for $2.105 million that July.
Plans for a modern four-level, six-bedroom building, with nearly 6,000 square feet of “amenity-rich” space and “rarely available scale,” with multiple terraces and a roof deck with panoramic views, were subsequently drafted and submitted to the city for review, along with an application to proactively secure building permits for the project and break ground, assuming the project was approved.
The plans and permits for the project have since been approved, albeit as a “two-unit” building, at least technically, but rather than preparing to break ground, the “shovel-ready” project, for which a building permit is about to be in hand, has just hit the market priced at $2.495 million.
If you think you know the market for high-end redevelopments and opportunities, and/or the cost/value of the five year hold, entitlement and permitting, now’s the time to tell.
Crazy detail to solve the over property line overhang on the Victorian facade to the left 🙂
I don’t “know the market for high-end redevelopments and opportunities”, nor do I have any expertise around the likely five year holding cost, entitlement or permitting (perhaps one of the members of the residential property flipping community will comment here on those), but just as a first cut approximation, this seems like an example of the power of leverage.
The gross difference between the 2018 sales price and the current asking only leaves $390k to cover the cost of holding (including taxes), ignoring transaction costs and excluding the cost of the permits, preparation of the plans, opportunity costs, etc. But they probably didn’t pay for the home outright.
If whatever legal entity that is marketing the existing home and plans put $421k down at 4.02 percent, the prevailing average rate for a 15-year fixed mortgage in July of 2018, and assuming no additional payments, the Amortization for mortgage loan Calculator at Bankrate indicates that the amount of the loan still outstanding in June of 2023 would be $1.239 million. The difference between the current asking price and the amount of the loan outstanding next month, minus the $421k down payment leaves about $835k to cover the things mentioned in my preceding sentence and any potential profit.
But of course, they probably didn’t do that, at a minimum they would have refinanced sometime between the 2018 sale and February 2022 when interest rates were at all time lows. Or, they would have financed the initial purchase with a floating rate or an interest-only loan, which would mean even more money left over from the hypothetical present sales price to cover any above-mentioned interim incurred costs and potential profit.
Between property taxes, insurance and interest (assuming 20% down) you are looking at at least $80k/year — so let’s say $400k total. So, basically no profit (and certainly not after broker fees and transfer taxes), and no recovery of whatever additional expenses were incurred to get plans/permits/etc. Unfortunately, the chance this sells for that price today seems pretty low, as current construction costs remain high and the completed project is unlikely to yield any profit (and certainly not on a risk-adjusted basis).
Similar inventory is sitting / getting price cut, and I’m guessing that — based on construction in/around neighborhood — more inventory is likely to come available. Not a crazy idea for the owner to cut losses and bail at this point, but they’ll need to be realistic on price.
When talking “profit,” one should always take into account all holding/carrying costs, including interest and principal payments, particularly if invoking leverage and an amortization table.
$2.2mm. The plans/hopes/dreams will be included +/- for free.
> and/or the cost/value of … permitting
After architect, engineering, lawyers, city fees I would guess $200k+
DR (of course) + plans
Thanks for posting this document.
Google search indicates construction cost/square foot in SF is $440. The highest in the world and just ahead of Tokyo. To build – and if sold at asking – the cost of this home will be over 5 million dollars. At a time when upper end homes are seeing price cuts and given the negative national publicity SF is getting from CNN to the NYT, I suspect there isn’t much demand for such a high-priced home in this location. Doubtful the lot manages to sell even if the price is reduced.
I believe your math is a bit off : $440/sf X 6000sf > $2.9M, which – not coincidentally?? – approximates the price. Of course that ingores all the other costs to build – like tearing down first – but yes, the idea of paying that for a vacant-lot-in-wating is dubious.
Unfortunately, $440 per square foot isn’t close to being accurate, particularly for this size of a project, design and finishes as implied.
A high end developer builder could do this for 440.
Can you list some builders who will do a just shy of tantamount-to-demolition 6000 sf remodel in that range?
Keep in mind that there’s a big difference between what a builder could do, at cost, versus retail rates or needing to account for a profit. On top of which, cost accounting for builders tends to be a little wonky, particularly in terms of allocating fixed costs.
Developers who are successful at high end remodels are typically small builders so the numbers should carry the actual cost not what armchair architects read on the World Wide Web.
sorry, $440 is the going rate for non-structural interior remodeling with a firm that will have 1 dedicated staff to the project. Costs are still high. Just completed a 1500sf one story ADU for $1M+
Not so. The Google search “what does it cost to build per square foot in San Francisco” currently displays “San Francisco $500 – $800 per square foot.”
You didn’t indicate what link google’s search engine used to display that, so I did the same thing and evidently it was from a table under the fifth ‘graph in this blog post at HomeLight which in turn cites HomeAdvisor as the source of the data. I don’t know how trustworthy HomeAdvisor is, I’ve never heard of them before now.
If people are doing this kind of thing now, just think how bad things are going to get for discourse on the web when commenters start routinely citing what ChatGPT says, in spite of it’s well-known propensity for hallucinations.
I wasn’t aware there are rules other than correcting obvious errors if needed. Sure, Homelight / HomeAdvisor. This home advisor anecdotally advises that the $500/ft range is dated, and have a lot of experience in the space. Your broad, weak “if [insert unearned broad take] + then [GPTChat] riff was not a thing.
So you’re saying that $440 is (an)”obvious error”??
Perhaps the concept of guesstimating what a hypothetical construction will cost is missing the forest for the lumber: which is that teardowns in SF are still being offered for astronomical sums…what whole blocks would fetch in some cities. The all imprtant missing bit of info is what – if anything – it ultimately sells for.
And of course Dave’s main point was that since the contruction cost of the proposed house plus the asking price for the lot/house/plan was so much less than what the house would bring, the only way to make the math “pencil” is to lower the asking price for the latter. Increasing the construction costs only validates the point even more.
Yes, $440/ ft is an obvious error. Also, “teardowns” aren’t really going to be much of a thing. This property for example is not a teardown. If it were, tack on at least another year to two in holding costs. And this one took, what, 4+ years?
So then the Plan is retention of the extisng house and adding on ?? If that’s the case – and it’s hard to tell since the rendering is similar in the (lower floors) – then the relevant metric to start with would seem to be the amount being added, not the full 6,0000 (i.e. it’s not the numeraor, but the denominator in the $/sf number that we need to worry about).
But I don’t think any of this challenges the argument that whatever is built would sell for less than its cost. Increasing the cost only enhances that argument.
Suffice it to say I understood the flawed premise. Anything I write here will engender multiple takes from multiple parties who don’t know what they’re talking about, yet still try to parse my language.
@Notcom – yes, whether it’s $440/ft or $600/ft it isn’t viable. A lot near me on Mt. Davidson was sold off (part of a larger lot) in 2015. Permits were had and construction finally started in 2020. Basically, digging into the side of the mountain and putting in girders to hold back the mountain’s tendency to slide. Activity stopped a year ago. Developer let the lot default back to the bank. A home there might have been built for closer to 600/foot given the massive foundation work. That situation was financially worse than this as homes nearby sell for no more than 2.5 million or so. Mt. Davidson isn’t Noe Valley.
BTW, in a world where SF was sanely run and had the money the falling prices would be an opportunity to purchase empty lots at a discount and preserve them as open space. In cases where projects have defaulted like this one the City might get the lots at a deep discount.
@Dave,
What? Lots like this one (it’s a house now), defaulted (it’s for sale by the owner not the bank), the city buying it? The city hasn’t even actually finished permitting it yet.
Oh and it’s not in Noe Valley, either.
@spaeky-b = I should have worded it better. I was referring to empty lots such as the one on Mt. Davidson where the project failed, and the vacant lot went back to the bank. There is a similar situation on Midtown Terrace where several lots have been eyed for development, the neighbors oppose it and the viability of building there is now problematic. The developer might be open to an offer from the City to purchase the lots if only the City was financially sound.
Dave, you sound confused my friend.
If there’s a situation where a project failed (to find a deep-pocketed equity partner, let’s be real about what we are talking about) and the vacant lot went back to the bank, what should happen is that the bank subsequently sells the property to another developer at a discount to account for the fact that the development project requires more substantial capital and patience than the original one had.
It’s not a matter of whether or not The City was sanely run and had excess money, and we shouldn’t want public money to be poured into the coffers of shallow-pocketed developers because that would incentivize more developers to acquire property that they don’t have the ability to complete development on. Especially in a city where we have a surplus of developers, flippers and other hangers-on trying to make their fortune in the real estate “game” by running up the cost of housing and many, many entitled projects never get built.
In the case of the lots on Midtown Terrace you mentioned, what does “eyed for development” mean? Does a developer have an entitlement and building permit or not?
If the developer owns them, just because the neighbors oppose development doesn’t mean The City should purchase the lots, unless said neighbors vote to to tax themselves and create a Mello-Roos community facilities district to fund that purchase. Again, the fiscal soundness of The City is irrelevant to whether or not those neighbors can or should do that to preserve the land as open space.
Has this property been vacant since the sale? If so, there’s a good argument for a vacancy tax, or some other means of disincentivizing keeping a property in a highly desirable neighborhood vacant for nearly 5 years.
Yes, and then erect more barriers to slow down the process so we can tax people for longer. Let each person in a quarter mile radius decide if they like the paint scheme. Make every bathroom remodel subject to CEQA analysis.
And erect more limits around renting to people for the short term or ending a lease on a pre-agreed date so that we disincentivize offering housing and just have a lot of vacant buildings paying taxes.
That’ll teach those hangers-on!
Yes, bathrooms remodels should to enrolled in CEQA. Noise and wind studies to minimize the impact of flatulence.
On vacancy taxes, I don’t see it making much sense for residential at all as long as you’re paying taxes and not creating blight. You should be free to make a somewhat poor economic decision for convenience a la a vacation house used 10% of the time or less. The same goes for most commercial.
For retail commercial, where it is a public good to some extent, it feels like some revisions of the tax code are necessary. Incentives for these retail landlords don’t seem to be extreme enough to get someone in, versus the write-offs they can make on the tax side. Would love other commenters to shed light on this situation as knowledge is limited here.
The best way to incentivize would be for it not to take 5 years to get a permit. You can’t really rent it out when you might get a permit next year, or the next, or….
It’s the city keeping them empty.
Keep in mind that there are around 9,000 units of housing in San Francisco’s pipeline of development that have been fully approved, including building permits, but which have yet to break ground or further progress.
What percentage of the 9000 units consists of vacant residential units not housing people and subject to a hypothetical vacancy tax?
Does that justify it taking 5 years? How much does 5 years of carry cost add? How much of a premium do architects and engineers add to a project just for it being in San Francisco? How much added cost is caused by 5 years of attorneys and expediters?
It would be interesting to find out the actual data on this. sparky-b is just assuming that it takes any developer five years to get a permit because he wants to shift the responsibility to The City.
Even assuming it takes five years on average from actual observations, we don’t know if all developers, or even the average one, are diligently pursuing their entitlements and permits and filing required documents and paying fees in a timely manner or if they are deliberately slow-walking through the process because they are waiting for some equity partner to materialize with the money to fund their project. soccermom and sparky-b both know this.
The stat related above regarding the 9,000 units of housing in the pipeline which have been fully approved, including building permits, but have not begun construction indicates that many developers are sitting around waiting, or trying to flip an entitled project and that time delay is not The City’s responsibility.
If there was some way to identify the developers that don’t intend to actually proceed to build, Planning could expedite applications and permits from those that are actually funded and not intended as entitled project flips and push applications from underfunded developers, flippers and other hangers-on in the S.F. real estate “game” toward the back of the line. Then it would take substantially less time for serious, funded developers to get a permit.
Wait a sec. ^. You start off saying “any,” when the case in point is this one, which did take 4.5 years or so. Look it up. Then you talk about some mythic equity partner materializing concept, which is not a thing based in reality. Next you totally misconstrue the 9000+ units fact. Perhaps you are not aware of the fact that these include for example developments such as the Rebuild Potrero project. These things are quite far from the realm of for profit flipping, I can assure you. Either way, your takeaway from the 9000 figure was not earned at all. Next it’s some sort of fantastical summation where Planning does means testing of private citizens so that the mythic “underfunded flippers” bogeyman should go to the back of the line? Sorry. That was unadulterated nonsense, top to bottom.
Brahma,
I didn’t make assumptions about this property I read the DBI website. Months between stations, 6 months to review at building for the SITE PERMIT (then another 6 months for the addendum at building with 4 of those just waiting for review) This building review isn’t structural that went next. Also 4 months of review at fire, 6 months of review at DPW, but not street tree it had to go there next, etc. etc.
This is not some outlier this is the status quo. So I am not shifting the responsibility to the City, I am pointing it out. Also in your post you are conflating this type of project with much bigger ones. Most builders are trying to do this as fast as possible and they have their equity partners already in from the start, but you know this!
Also, I will point out that these times are getting longer not shorter. I asked planning about a project of mine that has been waiting for a planner for a while, they said, “We do our best to be equitable and to process projects in the order received, with ADUs, small business and those projects that add two (2) or more net new dwelling units given priority as required by the Mayor’s Executive Directive.” So per the Mayor’s new directive to speed up ADU permitting, the decision on how to do that is to just cut them in line in front of everyone with just 1 new unit or a single family house addition.
Why is there a “small business” part of this? Because the same planners at planning and checkers at building look at commercial and residential and all sizes. A few years back I asked my plan checker why my addition was taking so long and he said. Because he was also plan checking the Warriors arena, they had booked him and another plan checker 2 days a week and they had to spend a lot of time looking into mezzanines and railings.
I have another project that I turned in last June, which adds a unit, it took 4 months to assign a planner, and then another 2 to reassign a planner who could actually review it. And another 4 months to get comments. I’m not trying to shift responsibility to the City, its factual they are part of the problem. They know it, that’s why they keep talking about how to make changes.
Here’s another one from a few years back. I asked my plan checker (building) why the review process was taking so long. He said, I am also reviewing the Warriors new arena and I have to spend a lot of time looking railing codes and stuff. Plus we have 2 days a week where we are just reviewing that with their architects. Why are single family additions and towers/arenas reviewed by the same people. There should be a designated 4 units and under team, as one option of many to expedite.
Here’s one last anecdote. I had a project recently spend 5 months waiting to get to a planner. When it got there he said “I don’t review lot splits, if this is a lot split it needs to get routed to someone else”. The first line of my application is “Split the lot”. It took months to get to someone else and start all over.
If you read my second paragraph it clearly indicates that I am arguing with sparky-b’s implication that it takes every flipper 5 years to get a permit. I admit that it might take some developers five years, but I would like to see real-world data indicating that in cases where the developer doesn’t “sit” on an entitlement, it takes five years at a minimum.
Developers can and do sit around on entitled projects waiting on an equity partner. I can’t add the link here because it’s to another site, but if you do a web search using this set of terms, San Francisco has world’s highest construction costs, you’ll find this quote:
Emphasis mine. This isn’t fantastical.
I could cite a dozen anecdotal 4-5 year entitlement slogs fwiw. It’s simply ridiculous what DBI has become. Every time they try to fix it they make it worse. The latest mandate is apparently to give ADUs and 2 or more units creation more attention, preference. That’s clearly to the detriment of projects such as this one in this thread. And well, OK, your example is on Mission @ like 8th. Few would start a commercial build in that area right now. I’d guess a substantial percentage of stalled out entitlements are in SOMA and downtown. Those areas are drastically underperforming other parts of town.
Brahma,
You are really stretching what I said. I implied “every flipper” takes 5 years. C’mon. I am talking about the topic of the post. You are not. This project took 5 years, many projects take years longer than they need to. (If my moderated posts show up, I go further into this). You are talking about entirely different large projects. Your bold face quote says “lowering affordability housing requirements” so it about projects over 10 units.
Are people who get permits for 300 unit projects flippers? are they hangers on? Anyway, I am talking about single family and 2-unit type projects like this one that take years and years to permit. The developer is not slow rolling it to find an equity partner or generally with the idea to sell the permit. They are mostly planning to build. When they are selling it is often because they had a knock down drag out with the neighbors on getting the permit and don’t want to do it for a few more years if there is a bit of money to sell. Or they tried to stagger their permits on 4 or 5 projects and they all backed up into each other so they are building the best 1 or 2 and selling the others.
That and not taking time and money to evict the tenant when the permits do come through, especially when lease clearly has a limited life when the building is waiting for demolition/remodel.
IMO retail landlord should be allowed to hold out for as long as they want for high credit quality tenant, 10 year lease term, substantial security deposit, etc. Its wrong to try to coerce retail landlord into accepting low credit quality tenant, 1 year lease term, minimal security deposit, just to avoid a vacancy tax. The retail landlord is already paying vacancy tax in the form of property taxes and insurance, other holding costs. But retail landlord should be required to maintain standards for exterior appearance.
At his point, given the sorry state of retail in SF, it is especially hard to attract tenants. Lakeside Village is a prime example. Villa D’Este closed a year ago. The space has been up for lease but no interest. Walgreens shuttered there a year plus ago. Up for lease but no takers. US Bank will close its large Lakeside branch next month. Many storefronts are empty on the 3-block stretch. There is no turnaround in sight. BTW, the empty buildings might be ripe for residential conversion – especially as a nice residential area abuts that stretch of Ocean Ave.
Rather than more taxes SF needs to try to find a way to make retail viable again. Whether that can be done is an open question but the City needs to make the effort. Nordstrom, Coco Republic and now possibly IKEA (they’ve delayed again their Market Street opening with no new date set) tell a tale.
I AM BEING CENSORED! GREATEST OUTRAGE EVER! MAKE SOCKETSITE GREAT AGAIN!!
Sorry sparky, it wasn’t personal nor targeted, you simply tripped a spam filter. At the same time, we lost a key server and its backup last week, the recovery from which has been our primary focus. We should have everything restored, including your flagged comments, by the end of the day.