77 Van Ness: 10/28/08 (www.SocketSite.com)
With Argenta (One Polk) on the market as an apartment building, and a reader suggesting that The Artani (818 Van Ness) might just follow suit (in terms of going rental), we’re keeping a close eye on the 56 units at 77 Van Ness (pictured above).
Regardless, with Symphony Towers (750 Van Ness) down the block cutting prices by up to 30% and The Hayes (55 Page) around the corner by up to 21%, we have a feeling they can’t finish construction on 77 Van Ness fast enough.
UPDATE: With a couple rental listings directly via Paragon on Craigslist (a two-bedroom at $4,250 and a fully furnished one-bedroom at $3,999), The Artani is at the very least testing the rental waters for a few of its 52 units.
The Scoop: Argenta (1 Polk) On The Market As An Apartment Building [SocketSite]
The Artani (818 Van Ness) Update: From Unveiled To Unwrapped [SocketSite]
77 Van Ness Rising (And Our Request For A Rendering) [SocketSite]
Price Cuts Of Up To 30% At Symphony Towers (750 Van Ness) [SocketSite]
New Development “Closeout” Sales: The Potrero And 170 Off Third [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by Live Smart

    That is a lot of rentals in a short amount of time. The slow to react developers will find that they’ll end up driving down rental prices (good for tenants) in the area.

  2. Posted by BobN

    By increasing the number of residents and, presumably, the number of shops, restaurants, etc. that those residents will need, I suspect the end effect will be to increase rents in the area. I’ve lived in or near Civic Center for over 15 years, and it’s a much nicer place to live now — and quite a bit more expensive, too.

  3. Posted by tipster

    …and with the news of all of these developments going rentals, the dreams of a hundred former house flippers, hoping to buy SOMA condos out of foreclosure and rent them out, went up in smoke…

  4. Posted by sf

    I have already seen ads for Artani on craigslist, I believe a 2 bedroom was around $2500, not bad, but for that price I’d expect a transit system that doesn’t make me late to work a few days out of the week and a gang related crime and vandalism rate not comparable to Haiti.
    [Editor's Note: An opinion is an opinion, but a fact is a fact: the only Artani two-bedroom we see on Craigslist is asking $4,250.]

  5. Posted by Dude

    My knowledge of construction finance is admittedly limited. But aren’t the arrangements usually IO during construction, then flip to amortizing if the project is not sold off? In other words, the developer needs to sell it off by a certain date, or if it converts to apartments or retains ownership of some %, the construction loan must be refi’ed into something permanent and amortizing. Same thing goes for any potential buyer of a project. At least that’s what I’ve read – could be totally mistaken here.
    The point being that rents are so much lower than the cost of ownership, I don’t see how turning a project into apartments will pencil unless more equity is put into the equation, which kills the return, or the seller takes a big loss.
    Anyone in the business care to elucidate?

  6. Posted by chris

    What building is that in the picture?
    [Editor's Note: 77 Van Ness (try mousing over any image for the title).]

  7. Posted by Michael

    I think that’s 77 Van Ness

  8. Posted by Willow

    Can someone post the link to the Craigslist rental listing(s)for the Artani? I couldn’t find anything when I did a search.

  9. Posted by Click Here

    Look below
    [Editor’s Note: Or above (to the UPDATE).]

  10. Posted by T-Money

    [Dude] regarding your comments…..
    Being on the equity side of the business condo loans are always IO during construction and the loan is usually paid down by the condo sales. Sometimes the developer plays it safe (given the market we are in) and does not apply for a construction loan that makes him pay down the loan with the sale proceeds, but will have to live with a higher interest rate. Depending on the loan the developer and equity provider will also have the option of extending the maturity date of the loan (ex. Two 1-year extensions for an “extension fee”). The extension fee can range from (0.25% – 0.75%) of the outstanding principal balance. Given the circumstances at the Argenta I’m sure they extended their maturity dates and will pay the loan off once selling the property or as you mention will refinance the deal. To note…. some of theses developers have also assumed loans that have certain loan convenants that will force them to sale. Some standard convenants such as a “net worth” convenant that the developer or fund must have in order for the loan to continue funding the project and avoid defaulting.
    According to my sources I’ve found out that the developer of the Argenta never took deposits during the construction of the project given the state of the market.

  11. Posted by condoshopper

    what’s the marketing reasoning behind these similar names such as argenta, arterra, artani, or is it purely a coincidence?

  12. Posted by condoshopper

    wow, $4000 for a 1-bedroom? how realistic are craigslist asking prices in general? i’ve been looking at SOMA 1/1 rentals and they list for low 2k’s to 3k per month. Anyone can share how much rent these fetch in the real market? i’m trying to figure out how much downpayment i need to make one cash-flow neutral.

  13. Posted by T-Money

    According to the rent comps i have the only buildings that have 2 bedroom rents in the $4k+ is the Paramount and what is in the proforma for the Argenta. I highly doubt that the Argenta will be able to reach the $4k mark, but the proforma has them listing all the 2 bedrooms starting at $3900 up to $4700 for the penthouse top floor units. This does not count the BMR component that the project has which is 9 with 3 being 2 bedroooms.

  14. Posted by Dude

    Thanks, T-Money, very helpful. I’ve heard 85% LTV was a ceiling on these loans (back when you could get them, that is). Assuming 15% book equity in these projects from the onset, it may be very tough to cash flow going straight to apartments today. Sounds like somebody will need to eat a loss (either the seller or equity holder) for a project to break even.
    But it’s a logical course of action vs. the alternative, I guess. Better to take a 20% hit now and have a profitable apartment building than take the same hit…and still spend the next 2 years trying to sell condos while the juice keeps running on the loan.
    More on-topic, I really like the Argenta. Wish it was in a better neighborhood.

  15. Posted by T-Money

    No problem…. at the end of the day its going to be tough to sell this project as for-rent. Having to assume the lease-up risk (acheive the proforma rents) will be extremely hard to swallow for any investment advisor or REIT especially in this market. I just don’t see this trading especially at the value the seller is suggesting. Given the risk and not knowing how to price leverage I don’t see the developer selling this project at the price they are trying to acheive. They might be forced to sell depending what type of loan they have in place. Hopefully for the developer there isn’t a mezz piece involved.

  16. Posted by T-Money

    I should know more about the loan soon.

  17. Posted by Michael L.

    Very nice rentals and well priced. 2 people making o.k wages can live in a nice area. What’s not to like….

  18. Posted by T-Money

    This will put a damper on any future development….plus conversion to apartments.
    Here is what rumored to be the new presale requirements listed below from three preferred lenders:
    Wells Fargo now requires that 25% of the units be in contract or closed before they can fund the first loan.
    Chase is requiring that 51% of the units be in contract or closed before the first loan can close. Their previous presale requirement was 25%. We first saw this in Los Angeles, but the requirement has now been instituted nationally.
    Countrywide now bases the required presale percentage on the project’s sales velocity. Well-marketed projects with solid absorption may have a presale requirement of 15%, while slower moving projects have higher presale thresholds.
    In addition to varying presale requirements, lenders will continually evaluate the ongoing success of a project, as well as the developer’s reputation and financial position.
    [Editor's Note: Or as we might say: Developers In San Francisco Getting Squeezed From Both Sides.]

  19. Posted by gooddealbuyer

    so if one was considering buying one of those unit at the Artani because of the layout, finish, location but find the asking price is crazy (even factoring a 25%) soon to come price reduction. Would you low-ball it another 10-15% to try to prevent from future price lowering in the next few months? Would the developer find that crazy and say “go away” or given the current climate would be willing to listen to your offer… I assume that even if a building like that goes to rental, they’d still be open to sell units. Maybe I’m wrong on that too.

  20. Posted by Van von Ness

    I’d expect that it just means the developers of the smaller projects (77VN and 818VN) would just dig a little deeper into their already-deep pockets and go rental for the time being: I’m sure they have financing that gives them the flexibility to do this. Right now, if you have deep pockets, this is a great investment to make – what’s not to like about the mid-to-high-end non-rent-controlled SF market right now? Of course if you’re highly leveraged then going rental could be a recipe for disaster a la Lembi. I’d guess 1 Polk is too big for this though.

  21. Posted by mwsf

    I can confirm a friend of mine moving into the Artani at the end of November. $2500/month one bedroom unfurnished…

  22. Posted by Po Hill Jeff

    $4k rent for a 1BR actually makes some sense – at least for the developers! Note that it is furnished and rentable for short terms. Likely this means they’re going for the “executive apartment” market for temporarily relocated office workers. This is a profitable niche but could fill up quickly.

  23. Posted by serenity now

    Keep in mind that new buildings like Artani may have some investors with relatively small equity positions. Some of these investors may choose to receive their equity and profit in the form of a few units versus cash. If they choose this route, those investors may look to lease. Extrapolating from that that “the building is going rental” is speculation at best as the CraigsList posting that you are seeing may involve only a few units in the building.
    Argenta is a bulk sale choice which given the market and location of Argenta makes sense.
    77 Van Ness sale versus rental discussion is speculative at this point particularly given the fatc that 33% of the building is commercial. My preference would be to spend time reading posts which are fact based. I already have a subscription to National Enquirer.

  24. Posted by livinintheloin

    I did a walk through of the Artani, and was told they are selling quickly. Could the rental be one that is offered by a buyer of one of the units?

  25. Posted by invented

    what’s the marketing reasoning behind these “similar names such as argenta, arterra, artani, or is it purely a coincidence?”
    “a traffic jam of similar sounding names.”
    This NYT read from Summer.”To Name Towers in the Sky, Many Look There for Inspiration”
    http://www.nytimes.com/2008/07/08/nyregion/08names.html
    Seems like vowely names sell.

  26. Posted by flaneur

    livinintheloin, I have a bridge to sell you. Let us talk soon. My other bridges are selling quickly.

  27. Posted by BT

    “for that price I’d expect a transit system that doesn’t make me late to work a few days out of the week and a gang related crime and vandalism rate not comparable to Haiti.”
    Van Ness has some of the best transit in San Francisco (near the Artani, bus lines 31, 38, 47, 49) and the crime rate in the Van Ness Corridor is no worse than elsewhere in downtown. My building has successfully controlled graffiti by removing it promptly and I haven’t noticed an unusual amount of that along Van Ness either.

  28. Posted by Ryan

    I have enjoyed living on Van Ness since 2006. Its central, and convenient. Enough said. I’ll never be able to make everyone understand my reasoning…

  29. Posted by Eric

    Amen Ryan & BT—we have been living on Van Ness since 2007 and can get to work (we both work in the East Bay) and anywhere in the city within 30 minutes or less using the buses or BART. For those who are not willing to put up with any of the usual things one finds in the city…..

  30. Posted by jd

    Does anyone have any scoop on how things are selling at 77?

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