January 21, 2009
Marcus & Millichap San Francisco Rental Outlook (And Quick Rebuttal)
The Marcus & Millichap rental outlook for 2009 in San Francisco: rents up 3.3% on 400 new units in professionally managed apartment buildings with at least 20 units.
Our comment (at the risking of stealing a bit of our own outlook thunder): we believe Marcus & Millichap is significantly underestimating both the number and impact of "shadow” market units for rent in San Francisco (which they deem to be “barely a factor”) as well as the effective number of new units for rent that will hit the market in 2009.
∙ Bay Area rental market gives tenants an edge [SFGate]
First Published: January 21, 2009 8:15 AM
Comments from "Plugged In" Readers
how much of a shadow will the second tower of the infinity cast when tishman sells it to an apartment owner rather than sell individual condos.
Does anyone have accurate sold numbers on tower 1?
Posted by: outnabout at January 21, 2009 9:05 AM
What's the breakdown of rental building size? Does this capture 2% of total units, 10, 30, 50%?
Posted by: rr at January 21, 2009 9:21 AM
How many "professionally managed apartment buildings with at least 20 units" are there in The City? I don't know a soul that lives in one, or who would live in one managed by CitiApartments .
Posted by: livinintheloin at January 21, 2009 9:26 AM
Per Paul Hwang on 01.15.09:
"Here are some interesting facts on Infinity from a recent meeting I attended with the developers of Infinity (today at noon):
1) 287 units closed
2) 330 units in contract or closed.
3) Nancy Oaks has applied for her liquor license.
4) Tower 2 will be sold in phases to begin with.
I hope that this is useful information for you.
Taking these numbers and looking at what the Infinity developer quoted in October - est?
"Oct 17, 2008 ... Tishman Speyer Managing Director Carl Shannon said Phase I of the 365-unit Infinity is 70 percent closed, with 251 units sold and 40 condos ..."
Not bad if my numbers are correct:
251 currently closed
40 in contract
74 units left
287 currently closed
43 currently in contract
35 units left
So 39 units have sold since October = est. 13 per month in this economy? Pretty good.
Of courst this is not confirmed, just a guess based on the info provided by Paul and Carl.
Posted by: gowiththeflow at January 21, 2009 9:26 AM
Sorry - 36 closed since October = 12 sold per month... 39 moved to either sold or in contract I think.
Posted by: gowiththeflow at January 21, 2009 9:32 AM
I have a hard time believing rents will go up 3.3% this year given the local economy, but I'm ready to be proven wrong.
it could clearly happen if more and more people of affluence who normally could buy instead choose to rent instead of buy.
it could also happen if rents go up 3.3%, and vacancy rises right along with it!
also clearly if the economy recovers significantly due to market and govt forces by the end fo the year.
Posted by: ex SF-er at January 21, 2009 10:16 AM
A great many apartments were rehabbed this past year. In years past, as a tenant left, the unit was just left as is and rerented. No more. Citi has really done a great job of rehabbing almost everything. Not that anyone I know would rent from them either, but the places look great, unlike years past.
As the rent controlled tenant leaves, the place is not just put back on the market for more, it's fixed up pretty nicely and put back on the market for even more.
So I can see rents rising a bit in spite of the economy as more and more of this is done by the larger companies.
On an apples basis, no - rents have already dropped by about 15% in D7 and its just getting started.
Posted by: tipster at January 21, 2009 10:24 AM
Rents are down on SFHs in Tiburon, and they appear to have cracked in nice parts of District 4 (those are the only two markets and market segments I know well).
Posted by: LMRiM at January 21, 2009 10:51 AM
tipster's numbers seem right to me. Rents in Soma highrises are down about 10-15% from what I can tell. With commercial rents down 25% and layoffs growing by the day, it's tough to imagine a scenario where SF rents rise this year.
I haven't read M&M's forecasts historically....are they usually pretty accurate, or are they like NAR forecasts?
Posted by: Dude at January 21, 2009 11:07 AM
I've been keeping an eye on craiglist for a few months looking for a new place to rent and have been noticing that prices in Nob Hill, North Beach/Telegraph Hill & Russian Hill are actually coming down. FiDi prices seem to be holding firm though. Then again, I'm not looking at any large properties. Also, I wonder if CitiApartments current financial troubles will also impact prices (up or down), since they hold so much rental inventory in SF?
Posted by: pica1986 at January 21, 2009 11:45 AM
While at the Ferry Plaza Farmer's Market last weekend, I noticed a large banner posted on or near the Golden Gateway Tennis Club that was advertising $5,000 incentive for renting at the Golden Gateway (now rebranded "The Gateway") apartments. Don't know the details, though. Isn't that near FiDi?
Posted by: waiting2nest at January 21, 2009 11:54 AM
I've noticed rents coming down in Tel Hill, where I live, and adjacent neighborhoods as well. Also noticed that apartments that haven't been on the rental market for years are now available. Last time this happened was '01 when I started renting my current 1 BR unit.
Posted by: saylor at January 21, 2009 12:17 PM
O wise renting bears -
What is the most effective way to negotiate down rent? I have a place in SF that I use occasionally. The building is a house with a separate one bedroom unit that I rent, and the owner has had it since the early 90s.
I'm pretty sure it wouldn't rent for what I presently pay for it, and my original lease has given way to a month-to-month arrangement. My financial condition is healthy and I have great credit.
What strategy works best?
- Offer to pay in cash
- Put a year's worth of a new, lower rent rate in escrow
- Start moving out (sigh - would be a shame, as I really like the unit)
Posted by: could_use_some_price_deflation at January 21, 2009 12:18 PM
> I haven't read M&M's forecasts historically....are they usually
> pretty accurate, or are they like NAR forecasts?
M&M only makes money when people buy apartments so it is always a good time to buy and rents are (almost) always going up. Almost as bad as the reports from the NAR (that are written for the same reason so people buy and generate sales commissions). The reports in SF are worse than other markets since so few apartments are managed by large firms that give M&M market data…
Posted by: FormerAptBroker at January 21, 2009 12:30 PM
Then M&M is an authority on BS, just like the rating agencies on debt. Paid for and bought buy those who need to use for their own end game.
Posted by: marko1332 at January 21, 2009 12:40 PM
> What is the most effective way to negotiate down rent?
> I have a place in SF that I use occasionally. The building is a
> house with a separate one bedroom unit that I rent, and
> the owner has had it since the early 90s.
Does the owner live in the house? If he/she does you are in a better position to negotiate since a quiet renter who is only there “occasionally” is worth a lot more to an owner that lives next to the rental than to an owner that lives on the Peninsula…
> I'm pretty sure it wouldn't rent for what I presently pay for
> it, and my original lease has given way to a month-to-month
> arrangement. My financial condition is healthy and I have
> great credit.
Look on line and in the paper for comps, you are in a better position to negotiate if you can show the owner actual similar units renting for less.
> What strategy works best?
> - Offer to pay in cash
> - Put a year's worth of a new, lower rent rate in escrow
Do your homework and if you are really paying above market it should be easy since landlords don’t want to lose a good tenant (and have to pay to get the place ready to rent while no rent is coming in). Cash is nice since many landlords will not mention the cash to the government (and save on taxes) and I would not worry about an escrow if you write a check for up to a year in advance since if you have an executed lease you can prove you paid you will have nothing to worry about. Out of the 100+ rental units I manage the one that is in SF (the home in Balboa Terrace my Grandfather bought in 1932) had a lot of demand and one of the reasons we picked the current tenants is that they offered to pay for each year in advance each January…
Posted by: FormerAptBroker at January 21, 2009 12:46 PM
Cash up front? Not unless you know what the owner's equity is. That is a very 2005 attitude and the world has changed.
Best strategy: Find market rent place that has been vacant for awhile, offer low (below market) and Move. 100% chance you'll get a below market deal.
Second best strategy, AFTER you find a place, pay the application fee, and the new owner calls the old owner for a reference, tell the owner you are planning on moving to this new place because it's cheaper, but you'll stay if they can do it for X. 50% of the time, the owner will say no, the other 50% they'll meet your number.
Worst strategy: tell the owner rents have declined generally and you want them to lower it. You'll get about halfway to market using this technique about half the time, and the other half, the owner will claim their area is special and that rents haven't dropped at all.
Posted by: tipster at January 21, 2009 1:05 PM
this report is so rosy its unbelivveable. Rents in SF has already come down in the past 6 months, and these guys are talking about a 3.5$ increase for 2009. reants are completely negotiable right now, and you can get places for 20-25% below the CL asking price. Landlords are concerned about losing tenants in this market and are more than willing to negotiate. I anticipate a 15% effective DECREASE in rents beteen Sept 08 and Sept 09.
Posted by: spencer at January 21, 2009 1:59 PM
spencer - i expect that you'll be negotiating your pac heights 2 bed down to $300 a month?
Posted by: anon at January 21, 2009 2:20 PM
$200, according to some doomsdayers on SS.
I do think Marina rents are down, my wife and I are clearly above market on a lease signed 4/08. I estimate down 10-15% since then.
Not the end of the world though.
Posted by: gh at January 21, 2009 3:18 PM
> Cash up front? Not unless you know what
> the owner's equity is. That is a very 2005
> attitude and the world has changed.
You need a court order to evict a tenant in California and the courts will not evict a tenant who has a valid lease and has paid the rent in good faith (the courts will probably not honor the 99 year lease for $1,000 that was executed the day before the foreclosure). Most tenants make out like bandits when a home or condo goes in to foreclosure since they typically live for 6 months to a year rent free before they make a “cash for keys” deal with the asset manager…
Posted by: FormerAptBroker at January 21, 2009 3:37 PM
"the courts will not evict a tenant who has a valid lease and has paid the rent in good faith"
Foreclosure voids the lease.
Any other ideas, Matlock?
Posted by: tipster at January 21, 2009 3:50 PM
waiting2nest: the Gateway is definitely FiDi, a block away from the Ferry Terminal Building, right across the park from Embarcadero Plaza.
I haven't seen the sign you mentioned, but on CL in December they were offering a $5k "bonus" on a 12 month lease of a $4,645/month townhome. Because the complex is rent controlled, they'd much rather do this than lock in a lower rent, but even now they've got more than one townhome sitting empty.
Posted by: PRFB at January 21, 2009 4:08 PM
Thanks, PRFB. It was actually a rhetorical question, and my observation about the financial incentive was in direct response to another poster's comment that FiDi prices seem to be holding firm. I did not know that the Gateway advertised this incentive on CL. The large banner that I saw could be seen from across the street on the Embarcadero -- it was hard to miss. Obviously, they did not get very many responses to the CL ad. Sign of the times...quite literally!
Posted by: waiting2nest at January 21, 2009 4:29 PM
Foreclosure voids the lease.
Not in rent-controlled unit, Matlock.
Posted by: anon at January 21, 2009 4:48 PM
Tipster makes a very good point about the trend in rehabbing recently vacated RC apts...im seeing lotsa cheap granit and stainless in newly rehabed remtals!
But i do not agree that we are seeing 15% cuts across te board, except maybe in soma. In my market, the mish, rents have stabliized/slightly softened from last summer's rush. I think thwy may go down 5-10% by late 09 early 10. But thats about it.
The MM forecast is too optimistic. The usual suspects/SS commentators too pessimistic. So what else is new?
Posted by: 44yo hipster at January 21, 2009 5:08 PM
"Then M&M is an authority on BS, just like the rating agencies on debt. Paid for and bought buy those who need to use for their own end game."
So does anyone here know if there is any remotely objective source of SF rental property/trend information available? I know it shouldn't, but the lack of transparency in this sector continually amazes me...
Posted by: pica1986 at January 21, 2009 6:53 PM
For what it's worth I discovered this site through SS a while back and it offers a consistent (but possibly flawed) set of reports on rental rates over time by sucking data from CL. Apart from a significant increase in rates for 3 bedroom apts, all others appear to being dropping significantly from August 08 highs.
(Go to "Overall stats/Notes" and select "Graph of rents over time")
Posted by: Richie Cunningham at January 21, 2009 7:02 PM
"What is the most effective way to negotiate down rent?"
The laws of renting are the same as the laws of dating:
You're never as attractive as when someone else wants you.
No one really appreciates you unless they're afraid they might lose you.
Find a place that would be worth the bother of moving. Give your landlord notice and see if they counter. If not, enjoy your new place.
Posted by: diemos at January 21, 2009 7:15 PM
The sfrentstats site is great and it is a really useful source of info/data. The obvious downside is that it is asking rents as opposed to actual rents. Since places with unreasonable high asking rents tend to stagnate on craigslist and be reposted, while at market rate places go quickly, this thends to significantly bias the SFrentstats numbers to the high side. However I would guess this bias is still relatively constant over time, unless landlord expectations get way out of whack with the changing rental environment.
Posted by: West Portal at January 21, 2009 7:45 PM
Rent increase this year? Not a chance. I predict 10+% down. I'm now offering 20% less for the new lease.
Posted by: jj at January 21, 2009 8:16 PM
I agree. The data is flawed, but at least it's consistently flawed.
Posted by: Richie Cunningham at January 21, 2009 9:27 PM
> The courts will not evict a tenant who has
> a valid lease and has paid the rent in
> good faith"
Then tipster wrote:
> Foreclosure voids the lease.
> Any other ideas, Matlock?
Can you name a single California judge that has granted even one unlawful detainer judgment to evict a residential tenant with a lease who has pre paid the rent?
Posted by: FormerAptBroker at January 21, 2009 10:13 PM
"Can you name a single California judge that has granted even one unlawful detainer judgment to evict a residential tenant with a lease who has pre paid the rent?
Posted by: FormerAptBroker"
obviously you are new around here. ss is all about bluster. there is no need to be accurate-just bearish ;)
Posted by: paco at January 22, 2009 7:24 AM
that's funny paco...sad, but true. some of these guys are really hell bent on convincing everyone that SF is going 50% down, and will be in the dolldrums for the next 5-10 years.
of course, we who have actually made alot of money with SF RE know better.
Posted by: 44yo hipster at January 22, 2009 11:26 AM
So today SF Gate is touting the opposite story (that rents are actually heading down) citing numbers from a firm called RealFacts Inc.
[Editor's Note: RealFacts' numbers are for the San Francisco MSA (which includes Alameda, Contra Costa, Marin, San Francisco and San Mateo), but as we originally wrote, we believe Marcus & Millichap is significantly underestimating both the number and impact of "shadow” market units for rent in San Francisco.]
Posted by: pica1986 at January 22, 2009 11:55 AM
One lender, Fannie Mae, agreed to halt evictions of renters in buildings it has foreclosed on.
It would be interesting to see if this goes industry wide, why cut off cash flow, and furter distabilize a marketplace?
Posted by: kathleen at January 27, 2009 7:48 PM
I know the advertised rents in my building at trinity plaza have gone down. they were up to 1395 or so now they are back down to 995. Im paying 1150. I doubt they would lower it.
Posted by: jt at January 30, 2009 10:30 PM
could_use_some_price_deflation said he has a place in Sf that he uses "Occasionally" I take it that means it is not his primary place of residence.
Be aware that rent control does not cover pied a tier's, the landlord has the option to bring below market rent controlled units up to market rate based on it not being your primary residence.
And as others suggested, do not guess what your unit would rent for, know what it would rent for based on comps, and than try and work out a deal based on your particular relationship with the owner.
and you sound like you are on shaky ground already as you are renting out the spare room as a master tenant, not an owner/landlord.
Posted by: Eoral at February 20, 2009 9:09 AM