December 19, 2008

Another Non-Comp Comp On The Market At 246 2nd Street (#1003)

246 2nd Street

In October of 2005 246 2nd Street #1003 sold for a reported $950,000. In April of 2008 the unit was bought back by the bank for $835,783. And yesterday it hit the market asking $689,900.

Previously purchased and owned by the same party that had owned and lost #502. And as plugged-in people know, but industry stats wouldn’t reflect, both condos were purchased with a significant amount of cash back at closing. Let’s hope nobody relied on that sale back in 2005 as a “comp.”

First purchased for $734,500 in the year 2000 when the building was built.

∙ Listing: 246 2nd Street #1003 (2/2) - $689,900 [MLS]
Can Bank Owned Comps Kill (Values)? 246 2nd Street #502 Returns [SocketSite]

First Published: December 19, 2008 5:00 AM

Comments from "Plugged In" Readers

Purchase price formula = asking price less heavy discount for current dreadful market minus $500 HOA X average holding period X 94 units X % that will default on HOAs X unit 1003 share of default mess = ???

It's a really low number.

Posted by: mktwatcher at December 19, 2008 5:00 AM

there are several sickening things about this
1) this is the type of person who will benefit from all our govt's actions to "save" homeowners.
2) this person decreased housing supply in SF by "buying" a bunch of properties s/he couldn't afford, thus raising the cost of housing for everybody.
3) the RE regime is so opaque that it allows such things to happen in the first place. Typical 0 down cash back at purchase BS that makes evaluation of the market near impossible.
4) all the banks that encouraged this sort of rediculousness are now getting massive taxpayer support so that they can continue to do this again in the future once we've "recapitalized" them. (bailed them out). the Fed/Treasury have spoken: no more big banks will go down. That'll be costly to us.

how many more units does our friend "own"?

all this govt intervention will help keep schmucks like him in "their" homes will keeping out responsible homeowners who can actually afford their places.

socialize the risks, privatize the profits

Posted by: ex SF-er at December 19, 2008 5:34 AM

"socialize the risks, privatize the profits"

Amen! So much for "playing by the rules". What will those who chose to act responsibly, and GASP, even rented while saving for a 20% or greater down payment get to enjoy? Higher taxes to support those who acted like this character. I would also add to the list the "professional" appraisers who would use comps such as this to justify their part of this insanity.

Posted by: grrrrrrrrr at December 19, 2008 6:11 AM

socialize the risks, privatize the profits

It's worth repeating. Another great post by ex SF-er. Taxpayers are rewarding the undeserving. The insanity of the Paulson Plan will continue.

Posted by: FSBO at December 19, 2008 6:34 AM

I like the pre-2000 pricing :) This building has a long way down. I hope everyone in there has already liberated his actual cash!

IMO fair value for a place like this is no more than $350K, and that's including a generous premium for the "specialness" of SF. Maybe $400K because of the 2nd bathroom and record-low interest rates that look to continue for at least a little while.

Posted by: LMRiM at December 19, 2008 6:39 AM

Those views will look really nice at night and the place is in tip top shape, so that can't be the reason for this kind of price decline. That leaves only one more thing: the city itself.

I guess, San Francisco is no more "special" now than it was in 1999.

Posted by: tipster at December 19, 2008 7:08 AM

Of course, realtors did tout this "sale" as a $900/sf "comp," as did appraisers, as did lenders (and, indirectly, so did ratings and securities firms). This was all just a grand Ponzi scheme that is now unraveling quickly. Was Bernard Madoff the purchaser, by any chance?

Posted by: Trip at December 19, 2008 7:13 AM

but if you look over the history of this unit, the property itself at this price is a good deal, at least to me.

If I were blocked by the new "4 units" rule, I would seriously consider giving an offer here.

by the way, I have been wondering if my posting got deleted by the editor when I sounds bullish about RE. He deleted one yesterday when I shared how my units purchased at peak years was only losing a few hundreds dollars now, as opposed to the common belief that own = 2X rent.

[Editor’s Note: Your comment wasn’t deleted, it was off topic and moved.]

Posted by: ester at December 19, 2008 7:18 AM

"as opposed to the common belief that own = 2X rent."

This is the common belief because for the last 4 years it ahs been mostly true when buying condos and SFHs in SF. of course there are exceptions.

Posted by: spencer at December 19, 2008 8:23 AM

SOMA blu within a block of there has new construction and is higher end for $680's for a 2br/2bth.

http://sfbay.craigslist.org/sfc/reb/960423656.html

Posted by: Jay at December 19, 2008 8:30 AM

Do comps like this typically cause issue with the entire RE section the place is located in or just buildings around it. Would a building like the Infinity be a bit protected given there are not too many buildings around it right now thus no way for short sales etc. to bring appraisal prices down?

Posted by: gowiththeflow at December 19, 2008 8:33 AM

Oh my goodness this unit is ugly. From the carpet to the ceiling to the view I don't see one redeeming feature.

Posted by: missionite at December 19, 2008 8:42 AM

Wow, tough crowd here - ugly unit? Looks fairly nice to me. Nothing fancy, but very livable. As for the $350,000 fair value, are you predicting that rents will fall so much that this won't appeal to investors at say $500-600k?

Posted by: Alpha at December 19, 2008 9:10 AM

ester, what's the "4 unit" rule?

Posted by: chuckie at December 19, 2008 9:19 AM

IMO fair value for a place like this is no more than $350K, and that's including a generous premium for the "specialness" of SF. Maybe $400K because of the 2nd bathroom and record-low interest rates that look to continue for at least a little while.

Have you ever even been IN this building or unit?

I have, it's got a good layout (2 ensuite bathrooms) outdoor space, a nice view, well built building. I understand you're just trying to talk down the market (or trying to impress us with your insight) but that comment has no reality behind it.

I bet it sells for 645K.

Posted by: anon at December 19, 2008 9:26 AM

I saw a similar 2/2 unit on Divis just north of California at the edge of Pac Heights, nicer, in a better area, and for about the same price in summer 2007 when the market was still hot. Now I'm not saying it went for 690k, but it's really interesting to see something inferior to that condo at the same price in a less desirable area in the midst of the greatest economic meltdown since the great depression.

Posted by: Jake at December 19, 2008 9:27 AM

I bet it sells for 645K.

That could well be right. Overvalued stocks and other assets generally find buyers all the way down to their fair - or "intrinsic" - value. Some people actually thought Google was worth north of $700 just a few short months ago (actually, many people).

Pricing on real estate (or any asset) is generally set by the marginal buyer. Sometimes it takes a while for markets to return to rationality. Sometimes longer than one can stay solvent (the quote often noted on SS)! Fortunately, there is no "negative carry" associated with betting against SF real estate over the past 5 years, as rents have been in almost every case well below "ownership" costs.

There is nothing special about this shoebox in the sky, and nothing spcial about the neighborhood. Its primary intrinsic value has been the ability to scam cash backs at purchase through the fraudsters in the real estate industry.

Even at $645K, that's a 12% decline from 2000 prices, and I'd be satisfied with that, at this point in the bubble unwind.

Posted by: LMRiM at December 19, 2008 9:52 AM

The fact that this unit dropped in price can only be attributed to the proximity of AT&T and Barry Bonds' departure from the team. Once the Giants sign another top dollar name to the squad, this place will rocket back to the million dollar property it deserves to be.

Posted by: DealMaster at December 19, 2008 9:55 AM

There is nothing special about this shoebox in the sky, and nothing spcial about the neighborhood. Its primary intrinsic value has been the ability to scam cash backs at purchase through the fraudsters in the real estate industry.

Please. Do we really know what the owner's circumstances are? It's possible they are scammers. It's also possible they lost their jobs, got transferred, who knows?

And even if they WERE scammers, to claim that this entire building's existence (and I guess by extension all the other recent buildings) is only a means to scam the real estate industry is stupid.

Posted by: anon at December 19, 2008 10:21 AM

I put a deposit on this building when it was first built back in 2000 but backed out because they were building a Marriott across the street that was going to block views. At that time my unit (a similarly sized 2BD/2BTH on the 9th floor) was going for 700K.

Actually the building and this unit is not as bad as many are making out and it is in a superior location to many SOMA buildings. Unfortunately it looks like pricing will be dragged down significantly by investors (like in this apparent case) or homeowners who were way over their head. There's something to be said for co-ops that screen each and every potential buyer to avoid a situation like this...

Posted by: Willow at December 19, 2008 10:26 AM

This is the type of building that I wish there were many more of - plain finishes, no fancy schmancy kitchen junk and bathroom junk - just a normal place for normal people. Of course, these should sell for normal prices, which I think for this unit should be in the low-500's. I'd buy this unit for 525k, regardless of what "intrinsic" value is, just based on the amount of money I have set aside, my desire to stay in SF for the long term, and the "normalness" of the unit.

Posted by: anon at December 19, 2008 10:35 AM

Willow,
co-ops can afford to screen an applicant's credit-worthiness because they have nothing to lose. If the board turns down the buyer, it's the potential seller that takes it on the chin, trapped in his unit at the mercy of the board. In NYC the board can turn down a sale only because the price is "too low". Co-ops are a remnant of medieval past, they lead to all kind of discrimination and lack of RE transparency. We're lucky in SF we have very little RE in the forms co-ops.

Posted by: asiagoSF at December 19, 2008 10:40 AM

This is the sort of person that the government will help with its actions? Can you prove that?

More relevant to the situation, what connection is there? Government told the banks they could do anything they wanted because regulations are bad. The banks chose to shower people like this buyer with cash in addition to buying this condo for them. If any party deserves blame it should be the banks who actually made this happen and the government regulators who allowed such deals to go through, right?

The situation that is left might have a few here and there that got away with their winnings before the curtain closed. Most still had plenty of exposure and some might even be prosecuted for criminal conduct. The would be condo flipper is going to loose his investments and his home and will have lost time and money and standing over all of this, possibly even some years of freedom when all is over with. The banks involved have lost such amounts that the government will be lucky to help them through, and even then many will go under. Moralists are painting this as a straightforward theft, but the real situation is more complex and less fortunate than that.

When we collectively decide to let regulations go then greed causes this sort of thing to happen. The money that people are fretting about now was lost back when scammers spent it on things that have lost their value and are now being lost to the scammers.

The only good reaction is to press for a return to reasonable regulation over lending, property exchanges, and securitization. Getting moralistic doesn't make sense because it is all of us collectively who allowed regulations and oversight to fail.

Posted by: Mole Man at December 19, 2008 10:40 AM

Wow, it is pretty crazy if someone got $110,000 cash back per condo, buying at least 2 of them, and a bank let them do it.

Posted by: Dan at December 19, 2008 10:44 AM

OK, I'm a bear myself, but you guys are being a little too harsh here. I've seen many units in this building, and it's one of the better buildings in Soma (personal opinion, I know). But it's certainly no worse than most other Soma towers.

Fantastic location, walkable to everything, etc. This unit is on the north side and fairly high up, so will have great city lights views. However, there's a surface level parking lot on that corner, which is a tremendous waste of space, so likely something gets built there eventually and blocks said views.

It is still overpriced relative to where you can rent a comparable 2/2 in the area. But don't forget 1306 in this building recently sold for $850K, and I believe it was the same floorplan. As always, only takes one person to fall in love with it. I think it goes for close to asking, maybe around $650K.

Regarding Blu, I wouldn't compare 4E to this unit. I've been in the Blu (probably my favorite building in Soma, all said), and the E floorplans are lightless caves that directly face that nasty metal AT&T building on the corner. Suitable for agoraphobics and cat collectors only. Although 4E is brand new with very nice finishes while this unit needs some work. Will be interesting to see how this plays out.

Posted by: Dude at December 19, 2008 10:46 AM

I agree with dude. I've been in the building and the units are in very good shape, it's pretty close in and a flat walk to everything.

However, if I recall, it has no real amenities. It wasn't built to live in, it was built as second homes for people in the east bay to use on weekends and loan out to their friends in an era when there was every incentive (including massive amounts of cash back, cheap and easy loans, and increasing property values that were never taxed) to own more property than you needed to.

Those days are over, and so buildings like this will suffer. $650 is possible this year, but by the middle of next year, no way.

As far as something being built to block those nice views. There is a glut of houses in SF and office space is being given away, and you are worried about something being built there? Not in your lifetime!

Posted by: tipster at December 19, 2008 11:02 AM

tipster, this building was NOT built at the height of the "massive easy loans and cash back". This building was finished in 2000. That's like saying that 1995 was the height of the dotcom boom.

Posted by: anon at December 19, 2008 11:10 AM

wow i had no idea the condo prices were so lofty in 2000.

anyway, the unit is a relative bargain compared to similar units/buildings currently. Remarkably, there are not many units for sale in this building at any given time; not even one at times; low turnover is a good indicator of a building's quality and desirability.

I agree with the person that said we should have more buildings which are more plain but solid, for normal people to live in.

Posted by: condoshopper at December 19, 2008 11:15 AM

Tipster is correct on the amenities - this place doesn't even have a doorman. But "wasn't built to live in"? C'mon...that's a little extreme.

The units I've been in have seemed very livable to me. My only gripe here, in terms of design, is the windows are small compared to some of the newer towers. Some of the bedrooms basically have a porthole, although this unit, from the pictures, seems to have full windows in both bedrooms. And at least you get your own balcony.

But I agree with tipster's pricing forecast. Moreover, I agree with anon at 10:35AM. We DO need more "regular" buildings like this. And at $525K, I'd be a buyer here as well.

Posted by: Dude at December 19, 2008 11:22 AM

Act now and score a rare Area Y neighborhood parking permit.

Posted by: Jeffrey W. Baker at December 19, 2008 12:27 PM

Regarding the comments that our bailout to banks is costing taxpayers, I saw an analysis on CNBC yesterday that indicated that the taxpayers are currently making a small profit on the TARP investments. So maybe we won't lose tax money in the long run.

Posted by: Jack M at December 19, 2008 12:31 PM

I personally wish I hadn't bought in the East Bay in 2007, because I would be more than down for this one.

I don't NEED views and my work is basically a block a way which would be wonderful during busy times.

Accessible for what I enjoy doing as well.

Posted by: J at December 19, 2008 1:42 PM

I also like the location, 2nd Street.

Blu is only around the corner but Folsom Street can get backed up during rush hour.

$650k for this unit is a good buy for what's out in the market now.

Posted by: jk at December 19, 2008 1:50 PM

I checked out the units at this building that have the huge wrap-around deck. Those are sweet, this one.. not so much.

Posted by: lolcat_94123 at December 19, 2008 3:21 PM

To go back to the first few comments, my cynical take on this is that we should have guessed that the government would probably step in at some point. The proper thing to do was (is?) to buy financial stocks at the extreme discount and assume they will eventually recover.

LMRiM- you are presuming that all investors are acting on a value-oriented strategy in their GOOG purchases. Most people, I think, are growth or momentum investors. The same is probably true with housing, except that we also purchase the house we need at the time we need it. While you (and other SS commenters) do the rent vs own math and do it well, I don't think most of us do.

Posted by: rr at December 19, 2008 3:30 PM

"socialize the risks, privatize the profits"

It's so classic. My wife and I both work at SF for public organizations. Wages are our major incomes. We saved very hard to get the 20% down and therefore, we have to pay a large portion of our income to government. And now the bubble is broken, we still need to pay for them because the government bailout. I feel so unfair.

Posted by: alma at December 19, 2008 5:35 PM

"IMO fair value for a place like this is no more than $350K, and that's including a generous premium for the "specialness" of SF. Maybe $400K because of the 2nd bathroom and record-low interest rates that look to continue for at least a little while."

How much do you pay in rent in Marin? The market is down, but $350K?

Posted by: Paul Hwang at December 19, 2008 9:10 PM

Chuckie,

this new rule by Freddie that they do not take loans from any one who has more than 4 properties, used to be 10.

That means people like me (owning 5 properties) can't get loan from a normal bank, but has to go thru banks like these TIC banks.

Posted by: ester at December 19, 2008 10:36 PM

"this new rule by Freddie that they do not take loans from any one who has more than 4 properties, used to be 10."

Good. That's a step in the right direction although I'd prefer it if the government limited their subsidy to one property per person.

Posted by: diemos at December 19, 2008 11:49 PM

where is the subsidy? what are you talking about diemos?

I'd rather they put it back to 10 such that more investors can get in to help stablize the market. when the market tanks, everyone suffers.

Posted by: ester at December 20, 2008 5:10 PM

Hopefully the editor will repost this one when it sells... predictions of anything in the $500's or less are ridiculous. This will sell between $650k and $700k... and it would sell in a matter of days if not for it being a bank owned property that is listed in the middle of the holidays... so any offer probably won't even get a response from the bank until sometime in January.... followed by a 45 day Close. So on March 1st let's all reconvene about a condo that "proves" the bottom isn't nearly as low as most of the commenters seem to want it to be.

Posted by: sfrob at December 20, 2008 5:34 PM

"So where do you live?" "The big mustard dispenser in Soma."

Posted by: sf at December 20, 2008 9:53 PM

ester - I believe the subsidy diemos is referring to is the below-market interest rate. Anytime the government provides a good or service at a below-market price, there is a subsidy, implicit or explicit. The fact that something involves a subsidy doesn't necessarily make it a bad policy, but there is no use in trying to deny that there is in fact a subsidy.

As for your claim that "when the market tanks, everyone suffers"...I can think of two large groups of people that benefit when the market tanks:

(1) People who do not own homes.
(2) People who do own homes but would eventually like to upgrade to a more expensive home.

I'd bet that those two groups combined make up the majority of the population. The market "tanking" is also known as the cost of living going down. We like that.

Posted by: anonm at December 20, 2008 11:33 PM

Correct on all counts.

The price of houses going up is just a rentier transfer of wealth from future homeowners to current homeowners. There's no net benefit to society as a whole. It's just a ponzi scheme that eventually has to collapse.

Posted by: diemos at December 21, 2008 6:53 AM

I am a realtor at Coldwell Banker, and hosted this open house today. I put the AD in Craigslist, and the editor sent me notification that he used my AD for this blog. The first of all, thank you editor for letting me know you used my Craigslist AD. I was thrilled to read all comments, and am glad to know that so many people were responding to this blog even though many comments were negative & harsh.

I wanted to report how today's open house was going. I was surprised that about 20 groups came over in the rain during holiday week. Many of them were very serious about purchasing this property. I saw some people made a comment above that the price is still high, but I felt asking price is pretty fair at current market. I think the condition of property is in good shape. Somebody wrote "ugly" about this unit, but I was wondering what was "ugly". I wish he/she was more specific because I did not think this unit was ugly.

Eveybody has different taste, and I respect all comments. Many of today's guests have been looking for while, and they know the value and I am under the impression that some of them fell in love with this unit. It's easy to criticize on blog, but please also respect the feeling of people who thought this is their dream home. I am very happy that they found their dream home, and hope the right person will be the owner of this unit.

Offer date is on Friday, 12/26 at noon. We will find out the sold price probably in February. Editor-Please keep your eyes on this sale.

Posted by: Rubi at December 21, 2008 6:22 PM

Both Infinity and Rincon are hinting at 20% discount when I visited them for the first time ever. that would put their 2/2 on the lower levels and mid=rise at $700K. In that perspective, this one is a little overpriced.

And I turned a lot more negative on the whole SOMA yesterday, too much supply. It is going to be a disaster 12 month down the road.

[Editor's Note: Hinting? Infinity Sales Update: New Contracts Up But Driven By Discounts]

Posted by: ester at December 22, 2008 7:50 AM

Saw it this weekend. Rubi is right - surprisingly good amount of traffic for a cold, rainy Sunday before the holidays. But that's not really evident of anything these days - could be bored passersby, tire kickers, or curious neighbors.

Anyway, my earlier comment was incorrect - this is not the same floorplan as 1306, which was also featured here on SocketSite. This one is roughly the same size but has a better layout, IMO, and nicer views despite being on a lower floor. Not that it matters - 1306 was sold before the world fell apart in September, so it's a stale comp. However, if this place does sell at $650K-700K (which I still think it will), the buyers of 1306 probably aren't going to feel too happy.

But the place is in great shape for a REO and needs nothing. Shampoo the carpets and touch up some paint, and you're good to go. Will be curious to see how this plays out, especially with the second Infinity tower scheduled to go to market in a month. Those prone to falling in love too easily should be careful....

Posted by: Dude at December 22, 2008 10:02 AM

1003 and 1306 have identical floor plans, they are just flipped.

Posted by: anon at December 22, 2008 11:07 AM

Hmmm. A peanut gallery with so many little peanuts piping up about stuff they know so little about and who probably have never owned a piece of real estate in their lives. Perhaps I might enlighten some and others I'm sure I won't. Here are a few facts:

1. The former owner of this unit, is the brother of the former owner of unit 502. Both these guys ran a mortgage brokerage in the east bay. Their partner sister was a real estate agent who brokered alot of their "shady" deals in the bay area (around 30 deals in the past 5 years). I write shady because most of these deals were written for either well over asking price or they received huge credits back at close of escrow. These properties were then rented out, refinanced and foreclosed with these 3 characters long gone. Perhaps on a beach somewhere today sipping margaritas wondering if/when the feds might catch up?

Either way, they are as guilty of contributing to the current financial mess as the FED who lowered rates to ridiculous levels, the greedy banks who lent money to anybody with a pulse, the unregulated mortgage brokers, the unscrupulous real estate brokers, the irresponsible/uninformed buyers and sellers, etc, etc.

Here's a little more to chew on:

2. To the peanut who thinks FMV on this unit is around $350k, I say to you "I'll bet you $10k that it sells for way MORE than your estimate. In fact, I'll bet ANYBODY that it sells at or higher than list price which is $689k".

3. Rubi is right. High traffic in the rain during the holidays? And that's just the people that probably showed up for the open house. What about all the others who show up with their agents any other day of the week? Tire kickers? Nosey neighbors? Sure, if you think so but I doubt it.

4. This is the type of market that provides numerous buying opportunities for the savvy individual. Just like the current stock market situation, you will be very happy with your purchase in the next 3-5 years IF you purchase wisely. Remember that owning a home provides many advantages when done properly: a roof over your head, pride of ownership, tax advantages and more.

5. The SF market will always be a strong one like those of NYC, Hong Kong, Tokyo, Paris, Rome, Madrid and not like Miami, Phoenix, Las Vegas, Detroit. The current available inventory will not remain forever and that is a fact. Just look at SF home prices over the past 50 years and you'll see for yourself. Prices ALWAYS go up and when you own, well, inflation is your friend. The average price of a single family home in the sunset in 1958 was about $25k. Today that average price is around $650k. Do the math.

6. Sure you're going to have some hoods dropping still (Bayview, Oceanview) but if you've ever ben to those hoods you would see why. There are actually some hoods that are still going up in price (Marina, Pac Heights, Lake).

7. Housing is a protected commodity in this great country of ours because when done properly it creates long term wealth and thus fewer moochers come retirement. Just look at current mortgage rates which are again at historic lows as proof.

8. Anyway, I've read and said enough. Enjoy the site, expand your minds and save this page to read again in 3 months, then again in a year then again in 5 years when you just might say "gee, I wish I would have bought when prices came down back then".

Posted by: Anno Domini-415 at December 22, 2008 11:34 AM

Ha ha...Outstanding! Well, Rubi, I think we found your buyer. And what better time than the holidays to engage in suspension of disbelief?

AD 415, enjoy your new home. It really is a wonderful unit. Just like 1306 was. Which has now lost $150K in value in 4 months if this place sells for $700K. But don't worry, I'm sure it'll be worth $18 million in 2058 (I did the math). Boy will us peanuts will look stupid then!

Posted by: Dude at December 22, 2008 11:57 AM

Hillarious, Dude, but I think AD already owns unit 1306 and doesn't need another unit.

Who else but recent purchasers and realtors would come on here and talk about how much traffic was garnered during an open house as a market indicator?

Posted by: tipster at December 22, 2008 5:06 PM

I agree 100% with AD's long term perspective on RE, althought I do think that $689K on this property is high at this point, after visising Infinity and Rircon for the first time this past weekend.

If someone can buy a brand new 2/2 at $700K, and possibly lower, why would he buy this one at $689K? I think it is more in line with the market at $630Kish.

If one can get 30% off on Infinity, it is worth considering. I think.

I was previously not even remotely considering SOMA, but I am now. And i like those mid-rise in Infinity in particular. Any opinion on that???

Posted by: ester at December 23, 2008 7:48 AM

ester,
I have to admit I am floored. If you can get one of those units to cash flow IMMEDIATELY, I take it all back. But really, can you?

Posted by: EBGuy at December 23, 2008 2:45 PM

large 1 bd are being offered at $510K, if you can push a little harder to $480K. with 3 yr free HOA, yes, you are cash neutral for the first 3 years.

It is very hard to expect to be cash neutral in a place like SF, even though historically there has been times when it was like that.

Phexnix has been considered a "disastrous" area in this wave of correct, and it hit that neutral point about 3 months ago, and it has been stablizing since that.


The fact the this unit is being offered at a pre-2000 price, and people still think it is expensive, it tells me that basically SOMA has gone back 10 years.

I could not belive that a person like me, who has been so negative on SOMA, is turned this weekend.

I think I am going to give an offer on 1 bd in the midrise of Infinity soon. at 30% off, and 3-5 year free HOA.

Posted by: ester at December 24, 2008 7:59 AM

Actually, without paying the HOAs, and without accounting for vacancies or maintenance (minimal in a new unit), cash-neutral is possible with a 480k IO loan at ~5% assuming $2500/mo rent.

Not a very conservative strategy since you will, eventually, have to pay the HOA fees. What's the rush to buy? It looks like the downturn, if there is one, is just starting in the city. But November's numbers could just be a seasonal blip.

Posted by: Jimmy (Bitter Renter) at December 24, 2008 10:27 AM

Wow, Ester. I can't believe there are still people out there who think like you do.

No offense, but you do realize that Infinity has an entire second tower hitting market in February, right? What do you think that does to prices in tower 1 (or rents if they turn the second tower into apartments?). The fact that "investors" are getting excited about being cash flow neutral (in other words, MAKING NOTHING) is pretty telling that the local bubble still has a long way to go. Astounding.

But seriously - there are a ton of ways to make nothing out there - don't limit yourself to real estate!

Posted by: Dude at December 24, 2008 11:06 AM

Boy, would someone really pay $2500 for a 1BR condo at this location? A quick look at Craigslist indicates there are nice places in great neighborhoods -- much better than 2nd and Folsom -- for quite a bit less than that. I think you'd need some pretty aggressive assumptions to make a place here pencil out even at $480k and no HOA.

Posted by: Trip at December 24, 2008 11:09 AM

thanks for all your inputs.

I guess I have a totally different perspective of looking at RE, and that is probably why I am so bullish even in today's market.

I did not start my first full time until I was 27. Assuming that I retire at 60, I have 33 years to raise the kids, pay off my own residence, pay taxes, save for retirement of the next 30 years, which means that I probably have to save 125% of my gross income each year now.

On the other hands, if I invest in RE, like I already did, I am sinking $1000 into the two rentals I have in Pac and RH, in 30 years, they would be paid off (mostly by the tenants), and I would have free cash flow each month, and I will never have to worry about outliving my savings. Harsh reality that we are all facing for people who have no pension, like me.

SO, I am not counting on near term appreciation. I guess I am not even counting on long term appreciation.

I am only counting on having tenants pay most of the mortage and have free cash flow (that is inflation adjusted) in the future.

Can't think of any other way that allow me to save for 30 yrs of retirement within 30 years of work life.

All being said, the possiblity that tower 2 goes rental is a real threat that i need to bake into my calculations. thanks.

Posted by: ester at December 24, 2008 1:58 PM

Dude,

No offense, but how many buessiness (small or large) go into operation and make money since day 1?

RE is no different. If I can get pretty close to neutral ( a few hundred dollars), that is a good starting point, at least to me. In a number of years, rent will catch up, and you will be breaking even, and making money later.

Owning (as primary residency or income property) is a locking into a fixed rent for forever. If you can lock a fixed price on anything (beef, toilet paper), you should expect to pay a preimum for it, won't you??

Posted by: ester at December 24, 2008 2:12 PM

"On the other hands ..."

Ah-ha : that's how Ester can pull off cash flow neutral buys, she's Kali, the Hindu goddess of destruction. (kidding, just had to exploit that typo).

I don't doubt that RE investment for income is a viable way to achieve financial independence. Of course it is, there are millions of successful small time landlords. However like any business one should make prudent decisions to reduce risk and increase profit. In RE, one of the biggest decision is purchase. Its should be obvious that you want the best value for your dollar. Buying when it looks likely that the market will be driven further down is just plain asking for making a poorly timed decision. No-one can predict perfectly but as you have read here that many saw this downturn coming.

"I am only counting on having tenants pay most of the mortage and have free cash flow"

Keep in mind that if you are pursuing "cash flow neutral" plays that even small perturbations in the market (your income, your tenant's income) can really get amplified in both directions. One forced sale at a disadvantage could easily set you back a decade.

You plan as you state it will work so long as you can execute it to conclusion and weather any storm that comes your way in 30 years. Be sure to pack extra supplies if you get blown off course or stall in the doldrums for years.

Posted by: The Milkshake of Despair at December 24, 2008 3:20 PM

So, how much more do you think Infinity can go down? and SOMA in general??

When I was over at Infinity a few days ago, the sales person pointed to a few construction sites around the tower and said that those are all going to be built in the next few years. Sounds like there are going to be supplies here.

Posted by: ester at December 24, 2008 5:28 PM

Who else but recent purchasers and realtors would come on here and talk about how much traffic was garnered during an open house as a market indicator?

who else but an angry renter would make that comment? high interest = high interest. duh. you'd certainly argue that no one showing up meant it was over priced.

AD 415, enjoy your new home. It really is a wonderful unit. Just like 1306 was. Which has now lost $150K in value in 4 months if this place sells for $700K.

#1302 sold in March for $775k - for some strange reason a buyer and agent got together and thought it wise to pay $75k more for #1302 in a declining market. Yet you choose to mock the person who is excited at a price that is 20% less. How much further do you really think the market will drop? Wait, I know, it's a ponzi scheme and you think it will go to zero.

Posted by: sfrob at December 24, 2008 10:27 PM

If you think 246 Second street is losing value, what do you think of The Blu on Folsom? What is the deal with high dues at the Blu with very little ammenities? What's up with their stacker parking instead of deeded parking? A few months ago when I looked, they were unwilling to negotiate and very arrogant.

Posted by: David R at December 25, 2008 4:54 PM

Blu is definitely hurting. Back in July I negotiated with them, they came down a few percent but would not meet my price. I walked. Come November, when contractees had the opportunity to walk harm-free from the deals they signed earlier, the Blu agent sent an email "just checking" whether I'd closed on another place. Their units have good quality finishes but are small with poor floorplans. The weird stacked parking must be because the basement is too small for all those cars. It sounds like trouble waiting to happen, and I'm sure maintenance for such a complicated system is part of the reason behind the high HOA. When I was talking to them they wanted >$900/sf. With current SOMA pricing the unit I was looking at--high floor, good view, relatively large--will fetch in the lower $700s, is my guess. Blu looked interesting during the boom but in a bust it's the wrong development in the wrong place at the wrong time. BTW, one of the reasons I decided against buying in Blu or anywhere in SOMA was the situation of huge inventory down there. Unless you have something spectacular thousands of feet in the sky, it's very hard to defend your gypsum board shoebox against commoditization. Properties that are unique in a good way, and in areas where it's difficult to expand inventory, are what hold value in down times and register outsized gains in the next boom.

Posted by: sunnyvalesteve at December 25, 2008 10:56 PM

I have noticed that Blu has had a few representative units listed on MLS for the last month or so:
http://www.redfin.com/search#sf=1,2&status=1&v=4&lat=37.784998&long=-122.397199&zoomLevel=19&market=sanfrancisco

How would you guys characterize this pricing compared to a few months ago?

Posted by: chuckie at December 25, 2008 11:18 PM

Interesting. I specifically looked @ 15A back in the summer. If memory serves, the price they're listing now, >$1000/sf, hasn't changed much since then. IMO a place like that is going to have to drop into at least the mid-8's before it moves in this market, with continued downside risk through 2009. Or they can hold it for a couple of years and cross their fingers. Too much inventory in SOMA. Too much competition. This bldg is generally much nicer than 246 Second, which it overlooks--I've looked at units there too--but not to the degree of the premium Blu is currently asking. Blu is middle of the road all the way--midrise, mid-sized, mid-priced, middling neighborhood. Right now that's a recipe for a commodity and commodity pricing for nicer 2/2's in SOMA are in the $700's/sf.

Posted by: sunnyvalesteve at December 26, 2008 9:59 AM

@ ester: originally I was going to suggest you sign up for an introductory finance class at the local U, and focus on learning how to calculate a fully-loaded IRR. You may also want to look up what an annuity is, and how many different permutations there are for you to choose from upon retirement.

But on second thought, I was wrong. I think you should totally put in that offer at Infinity. The sooner that investors such as yourself dump whatever remaining liquidity they have into this market, the faster we'll get back to equilibrium. Sure, you may lose thousands of dollars a month for the better part of a decade...but you're doing it for the kids! I can't argue with logic like that.

@sfrob: I honestly believe the market in Soma is trending to below $600 per square foot, and might approach $500 psf for some lesser properties. But now that jobs are disappearing and rents are falling, it's tougher to peg where the bottom may be. But I am certain that this ain't it.

@sunnyvalesteve & chuckie: I've also been in Blu a few times - currently my favorite building down here. From what they told me, their lenders require the project to be 25% in contract by 3/31/09. When I was there on the hard hat tour (early November), they were around 12% in contract, so they need to move some units in the next three months. They are definitly negotiating prices, but right now it's only on less desirable floor plans like E. Unfortunately, Steve, the higher A plans are the most desirable and they don't seem to be budging on those prices. Yet. But let's wait til mid-March.

Posted by: Dude at December 28, 2008 11:42 AM

A huge 2/2 at 250 King just hit the market for 599K; it should give this unit a run for its money.

250 KING ST #266 Mission Bay, 94107
$599,900

Beds: 2 | Baths: 2 | Sq. Ft.: 1,184

Posted by: condoshopper at December 28, 2008 1:43 PM

Condoshopper,

On Redfin, it looks like it's been on the market since Sept 2007. It shows a sales on 12/2/2008 for $629K... maybe the bank bought it. Although I don't see if it's an REO.

http://www.redfin.com/CA/San-Francisco/250-King-St-94107/unit-266/home/8191001

Posted by: chuckie at December 28, 2008 2:17 PM

Dude,

you draw the conclusion that I know nothing about introductory finance or annuity only because I decided to stay with RE investing? I hope that is NOT how you treat everything else in your life.

Also, I think it is a merit NOT to intentionally misrepresent other people's idea when in a debate. When did I say I would go into SOMA at "thousand of dollars loss per month"?

Posted by: ester at December 28, 2008 5:42 PM

Sorry, ester, I should have been more clear. Aren't you currently bleeding cash on all your other "investments" as well? The thousands/month figure I threw out was the sum of all the alligator food you're buying every month.

And I apologize for the insinuation. But if you really are familiar with basic finance concepts, it should be blatantly obvious that it makes more sense to keep your money in 4% insured CDs at this point rather than risk it in spec Soma condos where your best-case scenario is making nothing for a few years.

Posted by: Dude at December 29, 2008 9:53 AM

As for the BLU, I feel bad for the suckers who bought 4A with no views(but tree foliage!) and being a low floor and offering visibility to every passerby on the street below, for a whopping $925K! This was right before the recession became a public and global issue though.
I wonder what the A floor plans are going for now.
The Es feel like you're buried in a sarcophagus and the B and C set back against the ugly orange dated circa 1975 building looking into your bedrooms.
Way too overpriced for the lack of amenities and lack of deeded normal parking.

Posted by: JP at December 30, 2008 10:18 AM

246 2nd Street #1003 has fallen out of contract and its list price has been reduced to $675,000. Once again, first sold for $734,500 in the year 2000 and then again in October of 2005 for a reported $950,000 (which would have goosed both the building and neighborhood comps).

Posted by: SocketSite at January 26, 2009 8:09 AM

ex SF-er so nailed it in his comment from December 19, 2008 5:34 AM

Posted by: San FronziScheme at January 26, 2009 8:22 AM

Progress. A little bit closer to its fair value of $350-400K.

Posted by: LMRiM at January 26, 2009 8:28 AM

"Progress. A little bit closer to its fair value of $350-400K."

Still not sure why you folks let this guy get away with this particular brand of nonsense all the time. His "fair value" formula is a retreat to late '90s values, only. When pressed he'll admit appreciation occurred since then, but he pointedly leaves it out. Why? Because it wouldn't be as effective a flame if kept it in. But I'm over it. Now I'm like, it's his newest toy. Let the guy have his fun.

Posted by: anon at January 26, 2009 9:18 AM

"When pressed he'll admit appreciation occurred since then, but he pointedly leaves it out."

LOL, "anon" (fluj). Obviously, there has been no appreciation for this unit - none. Sold in 2000 for $734K, now listed nine years later for 8% below that year 2000 price. For this building (which of course only started selling in 2000), late 1990s values are way too high, even now.

Posted by: LMRiM at January 26, 2009 9:35 AM

Fair market "appreciation occurred since" the late '90s? SF saw a very sizable price run-up from the mid- to late 90s, so I certainly would not say it's a given that values have appreciated since then. It's equally likely that the easy credit bubble -- now popping -- is responsible for any price increases in the last 9 or 10 years.

By the way, glad to have you back, fluj.

Posted by: Trip at January 26, 2009 9:36 AM

anon,

That's a very emotional response. Care to give figures to explain the bashing of LMRiM?

I'm getting to a similar ballpark figure than him. But this is expected as we are both taking rational parameters to calculate target values, and SF RE has been everything but rational. More emotional than anything else, if you ask me...

This economical/real estate downturn is much more pronounced than in the early 90s. It would seem logical that prices will give away most of the vapor appreciation (you know, the one that was created out of debt that will not be repaid).

But let's be objective.

I always go back to the same basic rules of RE: 1 - what's the fair rental value? 2 - What would be a fair rent vs price ratio (one that would attract rational rental investors)? 120? 150?

Rents do not seem to be very solid neither. That affects the equation as well. If such a place were to rent for X dollars, multiply by 120 and voila, you've got a good target price in a normally functioning market. Of course, add irrational begavior and government intervention and you can multiply by 2 or 3. But not forever.

Posted by: San FronzisScheme at January 26, 2009 9:45 AM

2000 for $734K, now listed nine years later for 8% below that year 2000 price

Yet "fair value" is half that, Mr. play an appraiser on the Internet? LOL. More run of the mill condos tend to lose a newness premium. But 50% of value?

Posted by: anon at January 26, 2009 9:45 AM

There's nothing emotional about it. I find it amusing, and he knows what I'm talking about. I queried him in another thread, in which he showed his rationale. Yes, rent to own is amont the parameters. Others have displayed links to historic ratios which show SF has always been skewed in this regard. But I digress, because I'm really not interested in your opinions, or your takes on my opinions. You've recently been trying to posit yourself as some sort of figure of experience on here. I have seen far too many noviciate comments for this sort of posturing to be acceptable, personally.

Posted by: anon at January 26, 2009 9:53 AM

Definitely fluj.

Welcome back. We missed you.

Posted by: 143 DOM at January 26, 2009 11:12 AM

Novice: buys in 1994-2002. Sells all in 2005-2006.

Experienced professional: Buys at the precise top, spends a bundle and tries to flip.

I'll stick with my "novice" principles, lol!

Posted by: 143 DOM at January 26, 2009 11:16 AM

Gotta agree with the comments about LMRiM. His comments are just flame bait -- just ignore them.

About this building--it does have issues. I used to live there, I like it and the people who live there. But it's getting a bad reputation, and it has too few units, which make its HOAs high for what you get. Add to that the number of units the developer owns (and rents out), the recent foreclosures, etc--and I think that's a reason people are shying away from this building.

Posted by: another-anon at January 26, 2009 11:25 AM

His comments are just flame bait -- just ignore them.

I am not following your logic. He's been pretty accurate so far and proven more and more right each and every day. Of course we could all have listened to the NAR, have been wrong for 3 more years and gone bankrupt in the process like so many.

Posted by: San FronziScheme at January 26, 2009 11:52 AM

Novice: buys in 1994-2002. Sells all in 2005-2006.

Experienced professional: Buys at the precise top, spends a bundle and tries to flip.

I'll stick with my "novice" principles, lol


LOL is right. So you have said, and in another market in another country, supposedly, and not in the greater Niagara Falls area. No, it's more like the repeated naked attempts to acquire knowledge, even saying those exact words, along side incorrect statements about building, neighborhoods, design, real estate marketing, brokerage, escrow, you kname it. And always in lockstep with whatever is the bear CW on here. None of this meshes at all with the new posturing you're trying to adopt lately. Like you're some sort of sage on here.

Posted by: anon at January 26, 2009 12:02 PM

I am not following your logic. He's been pretty accurate so far and proven more and more right each and every day. Of course we could all have listened to the NAR, have been wrong for 3 more years and gone bankrupt in the process like so many.

Surely there's a happy medium between a permabear and a permabull? Anyway, to each his own. I find people like Shiller more informative, who doesn't share the 40-50% drop scenarios many people on this site seem to be hoping for:

"Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices, told Reuters that while he does not give quantitative forecasts, the futures market indicates the downward trend in home prices is far from over.

"The futures market, based on the indices at the Chicago Mercantile Exchange, predicts that home prices will continue to decline well into 2010 and could go down another 10-15 percent," he said."

Bad, but not the great depression II.

link

Posted by: another-anon at January 26, 2009 12:24 PM

Yet another bait post.

Some people want to learn. Others stick with what they think they know is true. And then life hits them.

I learn every day and am happier for it. You keep being angrier and angrier at the world because you've painted yourself into a corner.

Welcome back to SS anyways. That has to be the shortest "final exit" ever.

Posted by: 143 DOM at January 26, 2009 12:24 PM

Sure, Shiller says another 10-15% But that's probably nationwide, right? 15% down have translated into 40-50% in Vegas, many parts of FL and the BA.

As SF proves not to be immune, it appears to follow the trend of the less wealthy BA locales. The downturn is delayed, but it is there. and now the economy is the lead, not the RE/lending market itself.

We heard the "not the 40-50% you claim" when SF was flat.
We hear the "not the 40-50% you claim" when SF is down 15%.

Sure, it's not down 40-50%. Yet.

Posted by: san Fronzischeme at January 26, 2009 12:34 PM

Thanks professor. I learn daily. I learn on here. What I do not do is take another's perspective and pretend it is an original thought. And I stay out of threads I don't belong within. It is not baiting. I talked directly to you, and I made my point.

Posted by: anon at January 26, 2009 12:40 PM

Sure, it's not down 40-50%. Yet.

You permabears are determined to have a great depression, aren't you ;)

Posted by: another-anon at January 26, 2009 12:57 PM

To another-anon at 11:25AM: what are the "other issues" you mention? I'm seriously curious, since I really like this building and could see myself buying here when prices make sense. What's the scoop?

Posted by: Dude at January 26, 2009 12:59 PM

To another-anon at 11:25AM: what are the "other issues" you mention? I'm seriously curious, since I really like this building and could see myself buying here when prices make sense. What's the scoop?

None, really, other than the ones I mentioned. The developer owns too many units that he has rented out, which makes the owner-to-renter ratio low. Plus the fact that there aren't really enough units to support a good level of amenities.

Overall, though, the building has the same issues as any other building in an urban area. I liked living there--the location is good and you don't hear your neighbors because it's well-built.

Posted by: another-anon at January 26, 2009 1:09 PM

another-anon and Dude - I've always liked this building too. I've been in the penthouse which seemed really nice. There are 92 units so isn't that enough to spread the HOA expenses around - unless there are some extraordinary items? Did the developer hold back units to rent by design or was he unable to sell them? Surely he could have unloaded them in 03-07.

Posted by: FSBO at January 26, 2009 1:27 PM

I was thinking the same thing, FSBO: why wouldn't a developer unload these units in what was undeniably the most bubble-icious real estate market in history? Maybe the cap rates were pretty good then given it was built in '99? (dot com bubble, rents soaring, etc.). Still, they missed a great exit opportunity in '07. These comps can't be encouraging.

another-anon, would you happen to have a guesstimate as to what amount/% of units here are still held by the developer?

Posted by: Dude at January 26, 2009 2:05 PM

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