January 11, 2008
JustQuotes: Bosa Buys Parcel 5 On The South Side Of Mission Creek
“Builder Bosa Development has bought another parcel in the burgeoning Mission Bay neighborhood, paying $13.5 million for [Parcel 5 on the south side of Mission Creek] that has been approved for 270 residential units, according to Old Republic Title Co.”
“The deal comes as Bosa has topped off the first 99-unit phase of the Radiance at Mission Bay and started construction on the second phase, which will have 317 units.
The first 99 units went on the market in April and just over 50 percent are in contract. Dennis Serraglio, Bosa's sales and marketing director, said most of the units went into contract in the first 60 days after the sales office opened. During the second half of 2007, Bosa sold an average of two units a month.”
“Bosa said his construction costs are still rising; he said he would not be able to sell phase two of the Radiance for less than $1,000 a square foot.”
∙ Bosa still bullish, buys again in Mission Bay [San Francsico Business Times]
∙ Why You Should Care About All Those New Developments (Part I) [SocketSite]
∙ Radiance At Mission Bay: Around 50% In Contract (And Conversion)? [SocketSite]
∙ Radiance At Mission Bay: Sales Office Open [SocketSite]
First Published: January 11, 2008 3:40 AM
Comments from "Plugged In" Readers
I have never been able to figure out what the attraction is to the "Radiance" location. They were charging Cow Hollow psf costs at one time, though I am curious what the sales prices will actually end up being. Still, this news can only be counted as a posive sign for that part of town.
Posted by: anonconfused at January 11, 2008 9:26 AM
“Bosa said his construction costs are still rising; he said he would not be able to sell phase two of the Radiance for less than $1,000 a square foot.”
I'll call BS on this claim. Materials costs have collapsed, and I can't imagine labor costs have appreciably gone up, as the construction industry has begun to melt down.
Given the slow pace of sales for phase 1, undoubtedly this guy is just trying to scare buyers into believing that they had better buy now before the "phase 2" prices set the new (higher) benchmark. Really reminds me of all the controlled buildouts by tract home developers like Lennar in Florida, in which successive phases were scheduled to increase in price in order to induce a phony "buyer's panic". Lather. Rinse. Repeat.
Posted by: Satchel at January 11, 2008 9:40 AM
Where do you substantiate your claim that materials costs have collapsed? I am in the field of procurement and can state with authority that they have not. There is continued pressure on raw materials costs from developing countries (i.e. China needing metal, wood, etc) and from the continuing rise of fuel costs (transport of raw materials). Now, the rate of increase may have leveled off, but you certainly aren't seeing a major material cost decline.
With that said, I still think that $1,000+ psf is outrageous. However, perhaps a reason why Nat actually does need to sell at that price is because he doesn't expect a high percentage of the units to sell initially (given the housing slowdown) and needs that high cost to recover building expenses and holding costs for empty units.
Posted by: SFhighrise at January 11, 2008 10:04 AM
Well, I am engaging in a bit of hyperbole :) But take a look at the continuous futures charts for copper (almost certainly the best single indicator for worldwide construction demand and even trends in aggregate GDP - that's why traders and investors often refer to copper as "Dr. Copper" because he has a Ph. D. in macroeconomics):
And also look at the continous futures chart for lumber on the COMEX:
I also recall articles in the general interest newspapers (shouldn't be hard to find) that construction grade plywood prices are down almost 60% from two years ago (to the end user) and there have been articles recently about lumber mills closing because of lack of demand.
Although more recently (after a spectacular runup), the Baltic Dry index has been falling dramatically, which is a gauge of worldwide shipping tonnages for many base materials used in construction.
But I do take your point - perhaps I was being a bit hyperbolic. But also consider that the dramatic dollar weakness (against the Euro) and somehwat lesser weakness against the crawling pegged Asian currencies (especially RMB) may be masking what is decreasing real demand for contruction commodities (dollar price is holding steady or falling, but measured in a basket-weighted index of the major importers of contruction materials, prices are falling).
Your conjecture about needing to capitalize the holding costs of vacant units in higher prices because of slow sales sounds plausible. If that is the case, developments like this could be in a world of hurt if, as many expect, we fall into a deep, protracted recession, and especially if, as is CERTAIN, credit conditions worsen.
Posted by: Satchel at January 11, 2008 10:28 AM
I don't get it. Who in their right mind would pay over $1000/sqft for that area? Anyone familiar with the waterfront in front of Radiance will see how decrepit that pier is. The larger dock to the left is also stunningly ugly and blocks much of the water views. These 2 eyesores won't go away or improve anytime soon. The Port Authority has no plans in the foreseeable future to do anything with them.
So when I hear Radiance charging $1200-1400/sqft for their waterview units, it makes me wonder if the buyers really know what view they're getting?
Makes Infinity's waterfront location and views seem heavenly compared to Radiance...
Posted by: missionbayres at January 11, 2008 10:30 AM
Thanks for the insights. I don't participate in this type of commodity trading, so my view is from a more long-term perspective (2-3 year outlook). This is interesting.
Posted by: SFhighrise at January 11, 2008 11:15 AM
anonconfused and missionbayres...I agree that 1000/sqft is insane but I'm not sure I agree that it's insance because it's close to what's charged in Cow Hollow or some other parts of the city. I'm sure I don't need to point out that different buyers have different motivations. Not all buyers look at Cow Hollow the same or look at Mission Bay the same. Anonconfused, you have a preference for Cow Hollow. Nothing wrong with that. Missionbayres you obviously don't value some of what the radiance area has to offer the same as some other people value it and there's certainly nothing wrong with that either. Some, however, may have a preference for the weather, ease of commute, everything that goes along with owning in a new development, etc. over the benefits of owning in established Cow Hollow or other similar areas. Additionally, from a long-term perspective, Mission Bay has alot of potential and upside despite the downturn simply because it's not completely dependent on residential development. Consequently, I wouldn't say that people buying at Radiance are "not in their right mind" anymore so than people buying in other parts of the city. Part of what makes SF great are the many different areas. I can completely understand the attraction to the Pac Heights, Marina, Cow Hollow etc. I can't understand some of the close-minded people, however, that can never see a place in SF for areas like the Mission, Mission Bay, SOMA, etc. I know plenty of Marina/Cow Hollow/Pac Heights people that can't step outside their little box. That might work for them but it certainly doesn't work for me.
Posted by: Openminded at January 11, 2008 11:47 AM
My problem with Radiance pricing is where would be the "upside" for buyers in the next couple of years? Why can't they at least admit that this is not a complete "established" neighborhood, but in fact, it is a former industrial wasteland that will possibly take decades to complete. Asking someone to invest at prices that are equal to some of the most desirable neighborhoods in the country is a bit insulting. I myself would take a chance on this area, but not at over $1,000 psf.
Posted by: anon at January 11, 2008 12:01 PM
Decades to complete is a vast overstatement. The entitlement lands should be all built out within the next 3-5 years. If you are talking about the proposed seawall or building above the existing Caltrain rail yards, that is a different story. However, the area will already be built out to a critical mass by that time. There are already a lot more stores and restaurants that have opened in the past year in the area.
Still, I think that $1000+ psf is too much.
Posted by: SFhighrise at January 11, 2008 1:25 PM
As an aside, the new park and creek bank restoration along the sides of Mission Creek are very nice, and something I'd consider a draw to the neighborhood. The park is in a far better state of maintenance than most SF neighborhood parks - clean, grass mowed, shrubs trimmed, etc., and my guess is that's due to Redevelopment maintaining it, rather than revenue-starved Rec and Parks.
Posted by: zzzzzz at January 11, 2008 1:47 PM
Agree with Anon at 12.01pm. My problem with Radiance and other developments (like Esprit Park), is that these places are priced like they are in premium, established locations, instead of the proverbial "up-and-coming areas".
I think we all agree the area south of Mission Creek is still establishing itself as a residential neighborhood, and part of it are still quite industrial and rundown. Units on Berry and King St are priced less than Radiance so I don't see any upside in buying at Radiance relative to the rest of the neighborhood.
And I still think those ugly piers and docks will be an eyesore to those overpriced waterfront units for the next decade or two. I don't think folks realize how much it'll block their water views.
Posted by: missionbayres at January 11, 2008 2:03 PM
Missionbayres...Wow you don't see how Radiance is more attractive than the units on Berry? It's like comparing The Brannan to the Towers. Come on there's a HUGE difference. Radiance is way better AND the area around it WILL be better than the immediate area around Berry once it is built out. That's not to say that I don't think 1000/sqft is high...I just don't see how you can say Radiance offers "no" upside over the rest of the neighborhood. Even if you do think Berry is nicer how can you not see that others could think differently than you. For what it's worth though, Radiance is FAR superior.
By the way...it's starting to look like they are starting work on the remaining portion of the park that runs alongside Radiance from the Bay to the Creek. That will be AWESOME. The part already completed right next to Radiance looks great...imagine that running all the way to the creek. Should look great and add alot to the hood.
Posted by: Openminded at January 11, 2008 2:50 PM
I never said Berry St units are inferior or superior to Radiance. In fact, I think Radiance's quality of finishes and appliances are better than units on Berry. But at the same time, I don't think it's worth paying $200-$400/sqft more for comparable view units at Radiance. Some units are 255 Berry or Park Terrace are quite nice, and those can be had for ~$800-900/sqft instead of $1200+/sqft at Radiance.
Also keep in mind that Berry St is just about built out. You pretty know what kind of neighborhood you're buying into (Btw, I'm not a fan of Berry st. It's too narrow, buildings are bland, and the lack of parking is a major drawback.) But at least you know what kind of product you're getting.
The area surrounding Radiance MAY be nice one day. It MAY turn into a true residential neighbohood. But for those moving in this summer, the seashore, piers, old buildings, etc will pretty be the same for a few years. I do hope the buyers there are in for the long haul because it will be a while before I see those unit appreciating beyond what they are now.
In fact, with the declining market I wouldn't be surprise to see a high fall-out rate since many of those $1400/sqft units may be worth less now...
Posted by: missionbayres at January 11, 2008 4:31 PM
Actually, I think prices topped out at $1300/sqft at Radiance. Anyhow, I still think those units are probably underwater now, or will be soon in my honest opinion...
Posted by: missionbayres at January 11, 2008 4:37 PM
Using Bosa's logic, I hereby announce that due to my high cost basis, I will not sell any of my Countrywide common shares for less than $30/share!
Didn't anyone take Economics 101? The new Radiance units will sell for what the market bears. If at the time they become available, the market is $900/sq. ft., that's what they'll sell for. If market is $1,300/sq. ft., that's what they'll sell for. The builder's cost is a non-factor. Has anyone ever heard of a builder selling new units for below-market simply because his cost of construction was lower than his competitors?
Posted by: Robert at January 11, 2008 4:43 PM
Anyone else notice this land sold at $50K per unit - seems pretty cheap - especially considering the pricing of the finished units.
Posted by: Miles at January 11, 2008 9:05 PM
I'm with SFhighrise's comment. There has been slight drop in wood prices and in general material prices is finally settling instead of the past runaway prices due to stiff competition with national and overseas demand for material; but absolutely NO collapse. If so we would have heard in on the news. As for labor prices, City's triple whammy on wages/sick day/insurance increased constr. labor cost. On top of that there are some huge increase in wages specifically with local union plumbers and the electricians already inked in for the next couple of years.
$1,000 sf outrageous? As a whole paying $1000 sf is outrageous for housing anywhere period. But BOSA statement that Nat cannot sell less than $1000 sf I do not find outrageous. As a matter of fact I predicted to several friends a year ago that BOSA could not and would not be able sell Phase 2 at the same square feet given construction escalating, entitlement cost increase, permits & fees rising, and given the incredible difficulty to develop in SF which translate to higher cost. One has to remember $1000 is not construction cost but development + sales + profit. I did the math last year for kicks. Google brought me to a website that stated Radiance construction cost was at $560 sf...in my personal experience its in the right ballpark for luxury condo constructed of all concrete & metal. Add to the $560 sf. the cost Bosa had to pay to fund affordable housing built elsewhere in Mission Bay (10% of total units at 10 units or 20% at 20 units. I'm not sure what was agreed)...I'm guessing the City twist BOSA's arm in the ballpark of $4 mil - 7 mil for affordable housing which gets rolled into to buyer cost (guess about $40K-$70K extra per unit); add soft cost (consultants, agents, permit, fees, insurance, financing, entitlement cost etc.): add cost to contribute to Mission Bay infrastructure & parks; add cost of land; and add sales/commission/marketing cost...did I miss anything? At the end of the day, $1000 far from outrageous. I think Nat at BOSA is outrageous (in a gutsy way) to build in this economy, but I read he has incredible instincts. How his chess move pan out is worth watching. Historically, Bosa's formula is to build near water and to build in a frontier land where progress has already started and coveted amenties already set in motion. Bosa used this formula in San Diego and Vancouver and area became a coveted location. Look how much they are renting and selling now. Outrageous.
Four years ago Berry st was a dump, a friend wanted my advice: SOMA, South Beach or Mission Bay? I encourage my friend hands down to buy the the first lonely condo being built. Today my friend couldn't be more happier with her canal view (except with the constant construction)that the purchase was done before the stampede. Most buyers then did not like Berry St. as they had difficulty see the forest that will come from the seed.
Berry St or Radiance location? Studying Mission Bay with a fine tooth comb for fun, long term Radiance location as a whole WILL be a better location than Berry with the unobstructed view and CLASS A office next door(but not as charming as the Berry canal). Radiance is surrounded by park and water on two sides with an angle view of the bay bridge. One has to have foresight to imagine how the area will be once the parks and other amenities are in place. Except for the uncreative architecture, it will be quite lovely and lush. Mission Bay will be a investment winner in the LONG term if one has the cash and is not faint hearted, the key is to get in at the right time.
Posted by: ncyder at January 11, 2008 11:22 PM
Potential buyers should be aware of Bosa's contract. They should hiher a good lawyer to review it. They are asking 5% NONREFUNDABLE deposit. That is unheard of in the industry. With mortgage market almost dead one would be fullish to sign agreement like that and loose that deposit. I bet many of the uinits that Bosa claims are "under contract" will never close as buyers will rather walk out than pay absurdly high prices that are 20 to 30% above market.
Posted by: Mannon Herrema at September 21, 2008 7:57 PM