March 6, 2008
JustQuotes: Might It Draw Demand From Way Over In San Francisco?
"The developer of the recently opened Eight Orchids condominium mid-rise in Oakland hopes to auction off nearly a third of the units, with some starting bids $300,000 below prior asking prices, as builders struggle to unload new properties in the current housing climate."
"The auction of 41 units is scheduled for March 30....The minimum bid for one-bedrooms is $245,000, down from as high as $520,888; two-bedrooms will start at $325,000, down from as high as $630,888; and three-bedrooms will begin at $475,000, discounted from as much as $805,888. There is no "secret reserve," meaning any unit that receives at least the minimum offer will go to the bidder."
First Published: March 6, 2008 10:00 AM
Comments from "Plugged In" Readers
wow! i'm not a fan of this building at all as it butts right up to the freeway (think 1 rincon), but it's also across the street from that jail and it's not all that close to bart. as you can tell, not a huge fan. that said, those prices are cheap! perhaps that makes sense for an income unit. does anybody know what a place like that can rent for?
Posted by: garrett at March 6, 2008 11:45 AM
Alright, nobody else is biting so I guess I'll have to. If you look at the map or read the Chronicle comments section, you'll realize this building is next to the freeway and has an off ramp wrapping around it. Apparently in Oakland that's still considered a bad location, unlike here in San Francisco, where it's a luxury feature.
Posted by: Dude at March 6, 2008 11:46 AM
Garrett, I was pretty much thinkin the same thing. I'd love to hear some insights into the rental market in the neighborhood.
Posted by: luvinmissionbay at March 6, 2008 12:09 PM
If you haven't clicked on the links, do so! Digging around, I was trying to find out how many bagholders paid the rack rate before the developer decided to blow them out, only to have whatever downpayments and principal payments already made now "absorbed" by the auction process.
The first link is a typical Chomicle fluff piece; no mention of course how many "homeowners" who already bought are having their dreams flushed. But the real treat is the video on the developer's website! For a good laugh, count the number of times the words "upscale", "amenities", "european", "design"....
The website video never mentioned "investment potential". Well, at least that's a start in the right direction I guess....
Posted by: Satchel at March 6, 2008 12:23 PM
Hmmmmm, this building smacks against a freeway, has an onramp wrapped around it, and has tons of traffic/pollution around. It's also butt ugly and not very close to Bart.
Reminds me of a certain building in SF...
Posted by: missionbayres at March 6, 2008 12:23 PM
"There is no "secret reserve," meaning any unit that receives at least the minimum offer will go to the bidder."
What are the developers thinking ? Don't they know that the purpose of a low offer price is only to incite a bidding war ?
They're actually going to honor the offer price ? How naive !
Posted by: The Milkshake of Despair at March 6, 2008 12:25 PM
Not close to BART? This building is four blocks away from the 12th St BART station on Broadway. I personally think that's plenty close.
As far as Oakland neighborhoods go, this is a fine location. Not Rockridge, not the hills. But Chinatown is vibrant and Jack London has some things in the pipelines as well as some fine restaurants.
Posted by: Timosha at March 6, 2008 12:35 PM
there are some nice restaurants in the area, and it does have easy access to chinatown. however, just like chinatown the area is pretty dilapidated and has been even after the supposed "renewal" of old oakland. the parks downtown I feel are still not worth taking the kids to due to the syringes, trash, and unsavory types (not just homeless folks). at about 6pm, raiders-clad drug dealers can be found west of broadway by storm, and there are occassional murders in the area after 10pm, not to mention the many unsavory characters who love hanging out in front of bail bonds places nearby. i still think theres alot of room to drop for this area, but i must admit, some parts of SOMA are not much better (with the exception of the nightlife, which this part of downtown oakland has little-to-none).
you can't really compare this property to ORH, but maybe 1 lakeside drive (the essex) which is currently facing a high foreclosure rate.
Posted by: mrbogue at March 6, 2008 12:42 PM
A $300K condo rented for about $2,250 will be about break even with 25% down. After tax considerations, you're about $288 positive.
Of course, this depends on your financing, I was assuming 30 year fixed at 6%. Investors typically will use (or should use) a 10 year interest only, so it could cash flow better depending on your financing.
Lenders will require 20-30% down on non owner occupied properties now.
More cash flow positive properties in Sacramento/Stockton, but probably less appreciate over time. Could be a good investment for the right investor.
Posted by: RentalAnalysis at March 6, 2008 1:15 PM
Did you factor condo fees into that cashflow equation?
Those 2BR condos, on a cashflow basis, aren't worth much more than $250k each. Which is probably why the developer is auctioning them instead of turning them into rentals.
Posted by: Jimmy (Bitter Renter) at March 6, 2008 1:30 PM
Couple of comments...
"As far as Oakland neighborhoods go, this is a fine location. " It's not particularly dangerous and you are close to Jack London Square but this building is officially in ChinaTown. (Not exactly a selling point!) If you want to move into JLS buyers should consider 200 Second St (designed by David Baker) or 288 Third St. Those developments are not perfect either due to their close promixity to AMTRAK but they have been much better received than Eight Orchids. That's the problem with that whole area; you are boxed in by the 880 Freeway or AMTRAK; (which I believe runs between 5am-11pm most days.) On the positive side, there are some cool bars and places to eat in the area and you are close to the water.
"You can't really compare this property to ORH, but maybe 1 lakeside drive (the essex) which is currently facing a high foreclosure rate."
I bought a 2BD condo at the Essex 2 years ago as an investment, and the exact same unit on a higher floor sold for 70K less than I paid, so I figure I'm as much as 100K upside down at the moment. However I honestly don't think One Lakeside Drive potential buyers would even consider Eight Orchids. It's a different type of building. The Essex has extremely high HOAs by East Bay standards but it is probably the only true new luxury tower in all of Oakland. Also I imagine most people who bought in the building were seduced by the amazing unobstructed Lake Merritt / Oakland / Berkeley Hills view. That said, the foreclosure rate in the building is alarmingly high. Given that this is probably the best of the new construction in Oakland I can only imagine what is happening in some of the other newer buildings. I know for instance that the Sierra in JLS also has a high foreclosure rate. My advice: If you are considering buying a condo anywhere in Oakland just wait...Prices will only drop further as those people who were over their head during 2002-2006 are weeded out of the market.
Posted by: Willow at March 6, 2008 1:31 PM
Let's not forget that there are plenty of developers who gambled that people would pay for any real estate in any location as long as prices continued to climb. This is one such case -- bad location + speculative development + market implosion = get any price you can and get the heck out.
Posted by: JohnK at March 6, 2008 1:35 PM
Good on ya for admitting to being upside down, albeit temporarily. So many folks on here claim to be flush with appreciation due to very favorable early pricing in new developments that it makes me wonder sometimes. I bet they're all 6'4" with a full head of hair, too. ;-)
Good luck with your place, sounds like you've got the right right long-term perspective and will be fine in the end.
Posted by: Foolio at March 6, 2008 1:41 PM
It's in Oakland Chinatown...hence the prominent use of the number eight. Prices were all originally $xxx,888. Obviously all the eights in the world don't help if the very first number is too big.....
I wonder if the developer thinks an auction will go over well with the original target market, or whether they are trying to broaden the market.
Agreed with garrett and dude, although it IS quite close to 12th street BART. The map above implied Lake Merritt is the closest station, but it's not.
[Editor's Note: Good point about the map/BART (since switched).]
Posted by: curmudgeon at March 6, 2008 1:45 PM
i worded my post incorrectly. what i meant was that 8-orchids would not be a good comparison with ORH, and that the Essex would better compare with ORH (1 rincon), it seems alot of people are trying to compare 8 orchids with 1 rincon due to the proximity to the freeway.
Posted by: mrbogue at March 6, 2008 2:09 PM
This building might be having difficulties selling due to its relatively poor location, but given the profusion of new condos within a third of a mile radius of it, I very much doubt this will be the last development in that area to get into trouble.
Posted by: Amen Corner at March 6, 2008 2:20 PM
People living at 8 Orchids and commuting to SF won't board at the 12th street BaRT station as this requires them to go back to Lake Merritt to transfer to a SF bound train. Instead they will just walk directly to Lake Merritt.
On a positive note I think that the street facade of the building is one of the more attractive I've seen posted here so far. It reminds me of something from the 1920s Shanghai boom times, but with a modern twist.
Posted by: The Milkshake of Despair at March 6, 2008 2:26 PM
Oops ! my bad about the 12th St. station : I forgot that the Pittsburgh and Richmond lines provide direct trains to SF.
Still, I like the facade.
Posted by: The Milkshake of Despair at March 6, 2008 2:30 PM
My question is, hypothetically speaking, if you were an owner of a unit in this building and had just paid around $520,888 for a new 1BR unit next to the freeway in Oakland, would you or would you not be just slightly annoyed at even the vague possiblity that your "investment" (and I use this term in the loosest possible sense of the word) has just declined in value by approximately 53%?
Some people would call that kind of overnight decline in value a "meltdown."
Posted by: Jimmy (Bitter Renter) at March 6, 2008 3:40 PM
Every time I drive by this building I think, "That's one of the ugliest buildings I've ever seen." Come to find out it's Eight Orchids - no wonder the units aren't selling.
Posted by: MarathonMan at March 6, 2008 4:38 PM
I'd rather live in Jack London Square area. Sure you're boxed by 880, but it also serves as a bit of a barrier against the riff-raff in downtown Oaktown that is getting worse by the day, thanks to the sleepwalking Dellums.
Crime is way way way lower in JLS than downtown Oaktown, even up to the Essex. Had a friend of mine get shot in the back while riding his bike near there just a few weeks ago. (He's fine, thanks to a pizza box. long story). Anyway, never heard of any significant crime amongst the loft dwellers in JLS.
Posted by: David at March 6, 2008 4:44 PM
Obviously there are better deals out right now from a pure investment perspective. Condo's are never the 'best' for investment (HOA fees, historical appreciation rates, etc). With the glut of REO's cash flow is finally possible with SFR's in places like Sacramento/Stockton/etc. I'd rather pick up CA cash flowing SFR's then Oakland condo's near the freeway. I also would prefer CA properties (even Oakland condo's if they cash flow) as an investment to anything in any other state. Point is, now can be the time to buy if you do your homework.
Posted by: RentalAnalysis at March 6, 2008 4:45 PM
".the Essex would better compare with ORH (1 rincon)…" I under your point mrbogue although I think the Essex is in a far better location. I'd like to think (perhaps somewhat wishful on my behalf) that The Brannan would be a better comparison.
Foolio, I'm not thrilled that I have lost so much value but it was a 1031 exchange so at least I was paying with pre-tax dollars. (At least that's what I tell myself!) At the time of purchase I expected the price to drop about 10% but it's gone down almost 20% and probably still has another 10% to fall. The Oakland condo market at the moment is abysmal so I'm not even thinking of selling.
Posted by: Willow at March 6, 2008 4:48 PM
You'll be waiting a long time for a cashflow SFR in Oakland. probably about 8 years, just looking at the last bust. But better to wait and save your money--just have something attractive to stick it in while you're waiting.
Why would you prefer Cali properties over any other state? Don't say people will always want to live here, I'm sure that was said about Michigan in 1920.
Posted by: David at March 6, 2008 4:50 PM
More like 8 Organs, which is what you will need after you get shot walking out your front door...
I looked at the Essex 3 years ago. Everyone there is on interest-only loans, etc. Now there are 18 units currently listed for sale, and many others for rent. The prices are the same as 3 years ago, and fees are higher of course. Needless to say being a "bitter renter" instead has saved me $100K, give or take.
Posted by: snark at March 6, 2008 4:55 PM
Makes no sense -
There is no "secret reserve," meaning any unit that receives at least the minimum offer will go to the bidder."
The minimum is the secret reserve...
Posted by: Michael L at March 6, 2008 6:48 PM
Using a conservative cash flow assumptions (paying mgt/leasing fees,
I agree with RentalAnalysis and David, if you can find an SFR (somewhere) with true positive cash flow, then OK. But we're not there yet in East Bay and we'd need what, a 65% drop in prices to get there in SF. Positive cash flow and cap rates above 10% - what quaint concepts.
Posted by: FSBO at March 6, 2008 7:15 PM
Looks like I messed up the above post. I was going to say that I couldn't justify even a bid of $200,000 for a 2BR unit using conservative cash flow assumptions (paying mgt/leasing fees, less than 100% occupancy, repair costs, capital costs/special assessments over the longer term) and current rents (there is a 2BR at 8 Orchids on CL asking $1,750 per month) - at least not without banking on real appreciation.
Posted by: FSBO at March 6, 2008 7:28 PM
yeah, cashflow is quaint...however for the more ambitious wannabe landlords (not me), there are a few 4-plexers in Oakland that would appear to be decent investments that I've seen listed that could actually cash flow. Although I don't know the current rent rolls, etc (might have to wait for a tenant to die/move or whatnot).
Posted by: David at March 7, 2008 7:53 AM
speaking of rentals.. from yesterday;s news
important line embedded in this article.
"reduced rental demand noted for the San Francisco Bay Area.”
SF rental Fed says West’s housing ’stuck at very low levels’
March 5th, 2008 · 8 Comments · posted by Jon Lansner/O.C. Register columnist
Here’s latest thinking from Fed’s San Francisco unit about the West’s real estate markets from the “Beige Book” out today. It’s a report on regional economic conditions that’s done eight times a year. O.C. is in the Fed’s 12th District, based in San Fran. (MAP HERE) This regional real estate recap is No. 2 for 2008 (ENTIRE REPORT HERE) …
“Activity in residential real estate markets stayed stuck at very low levels during the survey period, while demand for nonresidential real estate eased a bit further. Demand for new and existing homes was little changed from the depths reached in recent survey periods, keeping transaction volumes exceptionally low; this caused prices to fall further in the weakest areas and flatten in areas that had exhibited resilience until well into 2007, such as Utah and parts of the Pacific Northwest. In contrast to the residential sector, construction activity and sales in the commercial and industrial sectors have been at high levels. However, a recent trend toward slight easing for commercial and industrial space continued during the survey period, with rising vacancies reported for Las Vegas and reduced rental demand noted for the San Francisco Bay Area.”
In January, the Fed said:
“District housing markets remained in the doldrums during the survey period, while demand for commercial real estate was high but showed signs of easing in some areas. Demand for new and existing homes remained exceptionally weak, and the inventory of available homes was at high levels in most areas and rose further in some. Price performance was mixed: prices on homes sold reportedly fell further in much of California, Arizona, and Nevada, but they held firm or rose a bit in parts of Utah and the Pacific Northwest. Mortgage availability and terms remained tight and continued to be a significant constraint on home purchases in many areas. In contrast to the residential sector, construction activity and sales in the commercial and industrial sectors generally have remained strong. However, contacts reported scattered signs of weaker demand, such as a decline in the number of interested buyers in the San Francisco Bay Area and lower occupancy rates for leased space in newly constructed buildings in Idaho“
Posted by: Spencer at March 7, 2008 9:42 AM
You can't be serious comparing Michigan to the Bay Area. Maybe NYC will be like Michigan one day as well, if you that long to see it.
I like the location of 8-orchid. Right in the middle of Chinatown. Easy access to lots of restaurants and services.
The problem with 8-orchid is the finishes. It looks like an apartment from the 90s. Bullnose granite ($75 for an 8-foot slab now from China).
I guess it's fine for being in Chinatown.
Somebody should've told them granite and shaker style cherry cabinets from China are not acceptable in an $800K condo in Oakland.
Since everyone plans to rent it out. You can say goodbye to the neighborhood. It's a good thing these are exempt from rent control.
Also the top floors are not included in this auction. They're trying to get rid of the junky units first.
Posted by: Cooper at March 8, 2008 9:01 AM
So I was playing around with zillow today and I looked to see what was for sale below $300K in the Oakland/Hayward area. There was more than I expected. When I took a look at the details of some of them I quickly saw a pattern.
A transaction in 2004/5. Either two or three years later another transaction at ~80% of the first one. And now listed for sale at between 20-30% off the second transaction.
Looks like the first lien holders foreclosed and are now dumping those properties on the market at firesale prices. Hoocoodanood.
Durn those banks, have they no decency? Don't they know what they're doing to the comps? ;)
Posted by: diemos at March 8, 2008 1:12 PM
I've read most of the comments and I think that many are constructive. I am, however, very tired of the double standard for Oakland/SF crime (have we forgotten why all of these buildings have secured garage parking?), proximity to freeway overpasses, etc. Some might not want to live in such an urban location (even in SF) but for those who would, the neighborhood has many amenities and for a new building close to BART and so many other up and coming downtown Oakland hotspots. The min bid is a great deal comparatively.
If you can show me a nicer new one bedroom condo for $250,000, I'd love to see it. But for those who can't afford much more, this will be a way to get into the housing market.
Posted by: Farrah at March 10, 2008 12:17 PM
Does anyone know if all of the units sold? If so, for how much more than their reserve price? Thanks, AT
Posted by: Alex at March 31, 2008 4:00 PM
bart's far a away, but isn't the ferry terminal really close by? Hmm, do I wanna take BART or the ferry to work???.... FERRY!
Posted by: marie at April 20, 2008 9:35 AM
I live in Oakland in one of the new condo units built in 2006 across from Broadway grand. 2300 Broadway and I really don't understand the constant talk of crime in Oakland. Yes there is crime here, but San Francisco is not much different.
The murder rate is out of control and there are far more innocent victims in SF than Oak. The media likes to hide the real crime stats for SF out of fear the tourist will find out SF really does have a crime problem. Give Oakland a few more years and when people stop being scared to actually step foot in Oakland they will realize it's not as horrifying as they thought.
Posted by: Downtown Oak at April 30, 2008 5:22 PM
I have to agree with Marie. Oakland has a bad rap. Google crime index for 94607 (zip of 8 Orchids) and you will see the criminal activity in the 94607 zip is lower than anywhere in Oakland (lower than Piedmont, Montclair, etc..).
I was at the sales office last week and they have sold 12 homes post auction and 41 homes at the auction. 12 homes in a month is more activity than any other new development in the area.
Bart, by the way is 4 short blocks...not that far!
Posted by: Tony at May 4, 2008 1:12 PM
What did these end up selling for?
Posted by: NoeValleyJim at August 10, 2008 10:00 AM