Do You Own a Hard Hat?

The Mayor's Office has just put out a directive that all residents of the South of Market will have to were hard hats when roaming the streets near or around their homes. (Just Kidding) This newsletter will focus on the tremendous development in the area, the rapid inflation of prices of both leasing and sales of residential and commercial properties in the area, what's driving it and what some results might be. As you know from reading my newsletter, its focus is on trends in the SOMA and not just new condos or loft developments.

Prolog

Getting through the last several quarters in real estate has been like trying to keep up with the Japanese Bullet Train on foot. No mater how hard you try, you never catch it. This last quarter has brought a whole new meaning to what the market will bare. In 1997 my production doubled and I was a top producer in 1996! Even the rain was unable to cool down the market. I don't see things slowing down for at least six months to a year.

NOTE: The format of the newsletter has changed. In the past the production format was designed for a hard copy. Since most of you have access to the Web, I have shifted the format HTML. If you prefer a hard copy and printing the document from the web is not feasible, leave a message on my voice mail (415 441-0656 Ext 266 or E-Mail Ed@somapro.com) and I will forward you a copy.

Driving Forces

The forces driving the general real estate market are interesting but less predictable than the SOMA market, which by the way is rapidly spilling over into the surround to the South and West. The economy is the biggest driving force for the upswing in the commercial development of the area. In the SOMA however, Multimedia, Mission Bay (Bio-Tech/UC-Catellus) and the Giants Stadium can be specifically identified with the current enthusiasm, development and money pouring into the area.

The demand for housing in the area, it is high now and will continue to be high, well into the new millenium. This demand comes from four segments of the population: the Techies, Dincs, Empty Nesters, Wanatbes. Silicon Valley Techies are marching to the beat of a money drummer whose tune is only limited by the creativity and vision of the many entrepreneurs willing to throw their proverbial hats, long hours, hopes and dreams, into the start-up ring. This group is generally, young, intelligent, creative and looking for ways to hedge their stock option bets,e.g. real estate. Next are the couples with two incomes and no children, DINC's. They enjoy San Francisco life, trendy life style, entertainment, being where the action is and throwing two incomes into the pot to make it all possible. This group is usually young ambitious, maybe part of the technological revolution, sophisticated, well educated, physically fit and on the fast tract to success. The Empty Nester are usually couples who finally got all the kids through school and out of the house. They wake up one morning and find themselves listening to a large echo in their suburban homes and decide to downsize and move back to culture, art, and gastronomical heaven. And finally there are those people " who by virtue of their heart, their brain and their courage", feel that by being a part of this great community of Oz, they will become more physically fit, creative and successful.

The area is teeming with multimedia start-ups and successful multimedia firms that are expanding. The irony is that they are the very life blood of the area ,a major reason for its being, while at the same time causing some of its biggest problems: lack of space for expansion and higher rents. As the convergence of commercial office space needs, new building developments (both residential and commercial) and expansion of more established multimedia, ad agencies and architectural firms takes place in the South Park /South Beach Area, property value and therefore, the cost of available lease space, goes up. What was .50 to $1.00 per square foot a year ago is now $3 per square foot and up! The Multimedia Enterprise in San Francisco has increased its number of employees 69% since 1995, currently employing some 35,000 people. The industry has generated 2.2 Billion dollars in 1997, up from 1.7 Billion in 1996. The continued growth of this industry is one of the driving forces behind the increased demand for housing and commercial loft type spaces. The continued pressure for space has forced the industry to spread to parts of the Inner Mission, Show Place Square and the North Slop of Portrero Hill. For a detailed report on the industry check in at www.mdg.org.

The ball park which is on schedule. The Giants ( www.sfgiants.com ) are planning to have their opening day game at Pac Bell Park to start the new millenium. The Ball Park has brought excitement, enthusiasm and a tremendous infusion of money and construction to the area. The residents' feeling may still be out on the impact that the Ball Park will have on there life style but one thing is sure, property value in the area has gone up dramatically since the Ball Park election. It seems that Baseball has attracted commercial interests which will make many parts of the neighbor seem more like neighborhood, albeit a different neighborhood. With the commercial interests have come small business interests to serve the increased population, i.e., cleaners, movie theaters, recreational facilities, yes even a possible supermarket at 4th and Harrison. Along with all the new business in the area comes thedemand for housing. This demand is being addressed by an increased supply of housing but none of it, in my opinion, comparable in quality and charm to the existing housing stock with very few exceptions. So what does that mean to you? No matter what happens in the general market place, your property will most likely hold its value or appreciate as interest in the area grows.

The third factor contributing to the demand for housing and work space in the SOMA/South Beach area is the development of Mission Bay. This is huge, no large, no gigantic, proposed development! The UC Campus alone is a 43 acres with a 2.6 million square foot building with an entire high school planned within its boundaries. Ground breaking for Phase I of the project is scheduled for 1998 and will displace the Mission Bay Driving range with three laboratories. William Rutter, President of Chiron Corporation sees this as "the premiere medical science area in the world". Where are all those people going to live? Again a new industry with housing needs is moving into the area. This project is long term. The demand placed on space and housing will be slow in developing but it will be significant for some time to come.

This summarizes the driving forces behind the shaping of the real estate market in the SOMA/South Beach/Potrero Area and what is drawing people to it. There is always a flip side to that coin and it involves a hard hat.

The Changing Downtown Skyline

Have you noticed that there has been some building going on in the SOMA lately! Well find your hard hats because that's just the beginning. Some major structures are now or will soon be under construction. The following commercial developments are currently awaiting either tenants, approval, financing or all three:

3rd and Howard -- Starwood is currently building a 30 story, 423 room hotel on the corner next to SFMOMA.

65 Second Street -- AKA, One Second Street will be a 25 story office building.

Pacific Stock Exchange -- Proposed construction at Folsom and Main.

101 Second -- 28 story office building is planned, Aurthur Anderson anchor tenant.

3rd and Mission -- 40 stories with condominium towers is planned.

199 Freemont -- 23 story office building planned for empty lot.

Gap Building -- Folsom and Steuart will host the 290 foot high, 540,000 square foot Gap Headquarters.

Market and 3rd -- On Market between 3rd and 4th will be a 36 story, 400 foot tower with sports club, hotel and condos on top floors.

One Embarcadero South -- is planned for 2nd and townsend -- 71 million dollar, 14 story, twin tower, 140 and 132 feet high respectively, with 233 rental units.

388 Beale -- a sixteen story, twin tower building over a four story public parking garage, with 200 rental units plus is now under construction.

Much of this was in the works before the Da Mayor trashed the Transbay 20/20 project. Clearly they didn't need redevelopment's help to create interest in the area. However, I can not help but feel that the synergy attempted by the Redevelopment Agency in the SOMA was planning at it's finest and laissez-faire commercial lust is urban sprawl at its worst. (I apologize for the editorial) You live in a construction zone get used to it.

Ramps, No Ramps, Ramps again!

Five years and 200 million plus dollars from now, you will look back on the planned Caltrans disruption and say 'Was that really necessary?". The plan is to tear down and rebuild the on-ramps to the Bay Bridge over the next five years. These ramps are travelled by about 280,000 cars a day. Don't plan on leaving the house on Giants opening day in the year 2,000. The area directly effected by this project is contained by Harrison and Bryant to the North and South and Fifth and Embarcadero to the West and East. The project will displace 3,400 cars and an untallied number of homeless currently parked under the bridge. Caltrans spokeman Jeff Weiss stated in an Examiner article on Janurary 5, 1998, " I don't want to say that it will be easy on anyone. In terms of staging , it will be the most complex project being designed in California." Try not to think about the Cypress Freeway Project. It should be starting in 1999 and finishing up in 2003. The article indicated that Caltrans officials emphaised that all ramp closures would be restricted to off-peak and weekend hours. Yet another reason why many of the smaller startup companies are opting for the Inner Mission and North Slope of Potrero Hill.

Near Completion

Well the residents around Yerba Buena Gardens ( www.yerbabuenaarts.org ) are about to be the recipients of about as many recreational outlets as any one community can handle. The 15 screen Sony Metareon Mutimedia Entertainment Center will soon be complete and the Children's Center is scheduled for a June 15, 1998 opening. Bowling, ice skating, science, carosel and all.

The Playland-at-the-Beach Carousel is back! A piece of San Francisco history retruned to its originally intended venue. The Carousel was sold after Playland-at-the-Beach was closed in 1972. (Boy do miss those chicken pot pies and the gravy-never could find a good substitute.) It was sold for $67,000. The redevelopment agency bought it back for $1,000,000 twenty-six years later! It is the cornerstone of the Yerba Buena Childrens Center. Originally it was built with San Francisco in mind by recognized carosel maker, Charles Looff in 1906. As you can imagine San Francisco had a little to much on its plate that year to negotiate for the Carousel. As a result it was shipped to a Seattle amusement park. Soon thereafter, a fire consumed everything in the park but the Carousel. Eventually Authur, son of Charles Looff, moved it to a seaside location in 1913 which would come to be known as Playland-at-the-Beach.Now if we could only find the laughing lady. (exerpts from an article by Rachael Gordon of the SF Examiner)

The childrens center expects 800,000 visitors a year and will have three security gauards per shift, twenty-four hours a day patroling the site.

To Live, To Work, To Live/Work or Not? That is the question.

This issue is heating up to a fevered pitch. As I have said in my past newsletters both sides have merit. But rather than take up a lot of mind space on this site, there is, in my opinion, an excellent site, albeit biased, that discusses the issues in great detail. Check it out if you have a passion for this debate: www.planetsoma.com/lofts/indes.shtml . What is of importance to the current loft owners is that as a consequence of the efforts of anti-live/work forces, it may be much more difficult to develope the live/work projects that are popping up everywhere. Lessening the supply will increase demand and voila! prices for available inventory goes up.

So what were the comps for 1997?

1997 was the beginning of the convergence of all the factors that have been addressed above. At the end of 1997 prices had reached a point where as a lister of properties for sale, I could only give an educated guess as to the values. Mutiple offers and over asking offers became the rule. Prices are begining to make an adjustment in the third quarter of 1998 but only after having gone up 15 to 30% from 1997 highs. Low inventory--high demand--all those old economy classes ring true! As always the maket finds its own level. The list of properties that I am tracking has expanded because the Renaissance is expanding and my role, as I see it, is to educate property owners and others in my area of expertise.

CONDOMINIUM PROJECTS

NOTE: HOA at Baycrest purchased parking garage towards the end of 1997 adding approximately $10,000 to the value of every unit with parking in the building.

LOFT PROJECTS

Oriental Warehouse, Cape Horn Lofts and Portrero Lofts at 18th and Arkansas will be in nest issue of What's Shakin'.