San Francisco's Millennium Tower (www.SocketSite.com)
It’s seven new contracts at San Francisco’s Millennium Tower since instituting a 15% price cut two weeks ago: six units with an average price point of ~$1.5M, and Penthouse 2A (a.k.a. 301 Mission #59A) at $10,200,000 for 5,555 square feet of raw space.
Approximately 100 of the 419 Millennium condos are now in contract with non-refundable 10% deposits (or roughly 40 net-new contracts since their first penthouse sale). The first closing and move-ins should occur around the end of April. And Michael Mina’s RN74 restaurant is on track to open at the same time. We’ll see you at the wine bar.
The SocketSite Scoop: Millennium Cuts Prices 15% Across The Board [SocketSite]
The Millennium: A Few Things You Might Know (And A Few You Don’t) [SocketSite]
Millennium Tower San Francisco (301 Mission): Sales Update/Facts [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by Paul Hwang

    Amazing finishes, high staff to resident ratio and probably the best amenities level in the city (wine storage, etc.) make this a great building for the busy executive or someone who simple wants the nicer things in life. With the Michael Mina opening, you’ll have stars above, and five stars below.

  2. Posted by Mina

    Another plus is nearby motorcycle parking!

  3. Posted by diemos

    This is a pretty building.

  4. Posted by SF Loser

    Another plus is that 3/4 of the units in this building will be empty so you don’t have to share the common resources with that many people.

  5. Posted by jessep

    I love this building.
    Having said that, I’m surprised more units aren’t moving.
    Great addition to the skyline =)

  6. Posted by unbelievable

    Thanks Paul for that commercial. Do YOU have $1,400/sq. ft. lying around? The sales office at Millennuim and brokers like you are delusional. Do you think a 15% reduction will help fill the 75% remaining units in teh building? These units, even factoring in the very high quality, are still 40% over valued. We are headed into 10-12% unemployment. More relevant, all the prospective customers were sales/traders/VC/investment bankers/buyside/sellside. These folks in SF satellite offices of NYC firms are the first to lose their jobs. No one (yes NO ONE) in their right mind is going to be buying a $2-4 mm condo in this market. Millennium will be in 6 months where Infinity Tower 2 is today – in a deflationary death spiral. No one will buy until prices come down. Prices won’t come down until no one buys… a 15% cut is insulting.

  7. Posted by LMRiM

    (wine storage, etc.) make this a great building for the busy executive or someone who simple wants the nicer things in life. With the Michael Mina opening, you’ll have stars above, and five stars below.
    LOL. I remember reading a piece about how some of the magnificent mansions built in the 1910s and 20s in Greenwich, CT were subdivided and cut up in the 1950s and 60s. Whole wings of the structures closed off, servants’ quarters turned into apartments. “We just didn’t live like that any more.”

  8. Posted by eastbaymike

    The building is beautiful. It’s amazing how light plays off the facade as you approach the city from the bay bridge or from the south on 101. It looks like a different building at different times of the day. This really reinforces how mediocre ORH is. It’s a shame the two buildings couldn’t switch sites.
    And “unbelievable” re-read the opening post. Seven new contracts plus the penthouse in the last two weeks. How does this jive with “no one (yes NO ONE) in their right mind….”? I guess there are still crazy people out there willing to throw away their money.
    And why attack Paul? He’s a realtor and he’s doing his job. Why are you so angry? And before you attack me, I don’t know Paul, I’m not a realtor, am firmly ensconced in the middle class, am not in the market, and have owned the same house in Montclair since 2001.

  9. Posted by tbonestk

    unbelievable, yes the economy is in the toilet but people are still buying. didn’t the millennium just cut prices 2 weeks ago and 7 already are in contract, plus the penthouse? not bad in my eyes. people will always be interested in great properties. don’t tell me the penthouse buyer is a complete clueless tool. the buyer just dropped a cool mil on the deposit.
    do you think prices will really drop to the 800k’s here? or 40% off?
    check it out for yourself, sales at both the millennium and infinity has been brisk. ask yourself, where else can you say that in the city?

  10. Posted by tipster

    Wrong, LMRiM, the temperature controlled wine storage is actually very practical.
    If you think about it, who would possibly buy a $1400 psft building in a recession? Of course: the elderly who could care less what happens to prices. What they want is convenience – everything right there.
    So the wine storage is very practical, because it can double as an on-site morgue when all those elderly buyers start to die off in a few years!
    I’d call it a “stroke of genius,” but my grandmother asked me not to use the word “stroke” around the elderly.

  11. Posted by tbonestk

    tipster, i usually find you funny but i didn’t get your humor today.
    where’s the punch line?

  12. Posted by cooper

    tipster—that was so bad.

  13. Posted by Grubber

    Well two things can be equally true I guess. The sale of the 10mm penthouse is proof that there some wealthy (hyper wealthy) with liquidity sitting on the sidelines looking to make a deal. But absorbing 300 more very high priced condos is going to be very hard (the sale of the 10mm penthouse is not evidence of 300 more buyers ready to jump at $2mm condos. On the other hand, since I walk often by this building on Beale, what the hell are they going to do about the 3 to 5 troll like homeless people who sleep right across from Beale St Station under the Transbay Ramp? These guys are like creepy and particularly dirty. Hopefully the $10mm penthouse owner doesn’t want to wander around for an evening stroll.

  14. Posted by tired of realtors

    unbelievable, I LOVED your comment. Finding a Realtor in this market who will speak frankly and honestly is rare. Some of them are so transparent they are like scotch tape! We are in the BEGINNING of a major recession. These units, along with most condo projects, high end or not, are grossly oevrpriced. It’s not the developers fault, they bought the land and are simply trying to pay of their debt service.
    Anyway, the fundamentals of housing prices in the area are still (housing prices compared to incomes as a ratio) toxic.
    Tbonestk, you are seriously delusional, are you a broker as well? Sales at the Infinity are disastrous, which is why they were forced to slash prices. I think unbelieveable got upset at Mr. Hwang because Mr. Hwang reminded him of Baghdad Bob, remember him? “There are no American forces in Iraq! Everythign is fine…” LMAO
    People should not be buying residential property unless it is an REO, short sale, or auctioned property. That is a generalization, but I’m not sure you really understand how bad things are going to get. We are nowhere near the bottom. The only people who should be buying are athletes who have 10 year contracts guaranteed to make 20M like Barry Zito. Guys like him will be able to ride it out, and stand to make a ton of money as they’ll be some of the only people with Oprah sized disposable income.

  15. Posted by SOMA Bull Long Term

    Unbelievable is absolutely correct about the direction of the economy, unemployment and that associated demand for high end real estate. There is more oversupply of condos in SOMA / South Beach than anywhere else in the city. Yes, the Millenium is nice and superior to other condo projects, but it won’t defy gravity. When Pacific Heights and Russian Hill already sell at lower prices on a per square foot basis, it impacts the Millenium.
    This is a fantastic neighborhood in the long run. In the short run, buyer beware. We are nowhere near the bottom in South Beach and SOMA. It will take 3-5 years to work off the existing inventory in this part of town. Why are all the condo projects being converted to rentals? They can’t be sold. I live in this neighborhood now and love it, but would buy anything for the next 3 years.
    As for the 6 units in contracts, those will be more than offset by the countless people canceling existing contracts. Ask the Millenium Sales Offices how many people have canceled their contracts? In spite to the 15% reduction, that number is already significant and will become even more significant by mid-April.
    Four Seasons, St. Regis, Ritz Carlton and the Millenium will eventually reach sub $1,000 / SQ FT. Depending on the floor and unit, that’s another 20 – 40% discount from the current prices (post 15% redution).

  16. Posted by Dude

    This is a great building, no doubts about that.
    Funny how this high-dollar penthouse sale suddenly occurs now, and even gets written up in the Chronicle. Can’t beat free advertising.
    Imagine if the sale didn’t go through, and it turned out the sale was contrived to get publicity and generate momentum, and then 59A was back on the market for $9MM in a month or two. Nah…I’m sure something like that would NEVER happen in San Francisco real estate.

  17. Posted by Skeptical of Realtors

    More support for Unbelievable. The economy is headed for calamity. Forecasts in newspapers, CNBC, etc. are way to optimistic. Folks this is really awful. I wouldn’t buy a foreclosure right now. Without sales volume, there is no way to determine pricing. Wait it out. Bargains at the Millenium and elsewhere will still be there in 2 years from now.
    Those 6 new contracts should have read Socketsite’s 2009 Outlook
    “With no discernable recovery in sight, we expect the financial market’s destruction of wealth both real (investments) and potential (options) to continue to drag down the San Francisco residential market throughout 2009, and to weigh particularly heavy on the luxury market.”

  18. Posted by tipster

    My humorous (it was, wasn’t it?) post was intended to subtly point out the fact that there will always be a segment of the market who will not care that prices are falling.
    The elderly. The guy trying to hold on to the hot gold digger or who thinks having an expensive pad is his only chance to get one. The guy who married the gold digger and needs to shut her up so he can go back to work. Someone who just lost a relative at an early age and who figures you only live once. People with huge trust funds who get from the trustee what they spend, so the more they spend, the more they get.
    There will always be people who simply don’t care. Of course, in an era of declining wealth, the numbers of those people are shrinking every day, but they will always be there and if the need or want is now, they’ll take the plunge and leave the consequences for later.
    Can they scrounge a handful after a big price drop? Always. In any economy. It’s not going to impact the greater market.

  19. Posted by jamie

    I do like the looks of the Millennium … very cool building in the Rincon Hill neighborhood.
    Another Rincon Hill tangent … Seeing more and more dogs in Rincon Hill these days – can’t wait for Caltrans to get that dog park set up on Bryant and Beale for them to run (and do their business).

  20. Posted by Realist

    Why buy at the Millenium when you will be able to rent for 50% less per month? Sales office claims 25% of the building is in contract. Translation: 15 – 20% are actually in contract. 5% – 10% will cancel. At the current prices, there will be a lot of dark windows at night unless renters fill this building.

  21. Posted by condoshopper

    every time i get ready to make a 20% below asking offer on a modest condo in soma, i read one of these threads and end up re-trenching for a couple of weeks.

  22. Posted by LMRiM

    That’s smart, condoshopper. Just sit back and enjoy watching the show. In any unwind of a bubble, the first and second round of knifecatchers get destroyed. It just takes a long time for people to understand and accept that a paradigm shift has taken place.
    I’d guess 18 months to 2 years from now would be the right time to make lowball bids on nice properties that you wouldn’t mind living in for 8 to 10 years.

  23. Posted by tipsteR

    Jamie,
    Millenium Tower is two blocks OUTSIDE of Rincon Hill.
    Scroll down to see the boundaries of Rincon Hill on a map:
    http://www.sfgov.org/site/planning_index.asp?id=25076

  24. Posted by condoshopper

    LMRiM, when prices reach near their bottom, what do you think studios and one-beds in soma will go for? if i have a prediction in mind, i might just go ahead and try a few low-balls in that range.

  25. Posted by LMRiM

    You know, condoshopper, I don’t know the specific buildings very well, but I’d bet you’d be able to pick up studios and 1/1s for 20-40% less than whatever the best price you could obtain for them today. If I were you, I’d strongly consider lowballing larger 2/2s if you can wait. These almost certainly wouldn’t fall as far, but you never know. I just don’t think there is much “pride of ownership” inherent in studios or 1/1s. In a rational world (which we are moving towards), 1/1s and studios should cost less to own than to buy, perhaps substantially less in low interest rate environments (to account for the implicit risk that rates rise, and therefore the price of the asset falls).
    If I were intent on lowballing today on that sort of property, I’d look at equivalent rents in craigslist. Discount the wishing rent price by 15-20%, multiply that by 125, and that’s the price I’d lowball now (for an owner occupied property), although I don’t think the foresale has progressed yet to where this would work right now. Assuming, however, that you do get one at that low price, you might not be able to sell it for 5-10 years, but at such a price and with today’s low interest rates, utility value should outweigh any risk that something unforeseen happens.
    If you really think that you could live in the place for more than 10 years, the stability of locking in your living arrangement might be worth a higher multiple, maybe even 150-200x. Best of luck, and I hope that helps. Keep us up to date on what you are seeing if you lowball :)

  26. Posted by cooper

    Dear Condoshopper–lowballing at the higher end buildings such as millenium or infinity still doesn’t work well enough to mitigate risk. I’ve been able to get folks off 25% off Rincon tho (still not enuf).
    I think Infinity you can get 15% maybe…
    Wait if you possibly can and just rent.

  27. Posted by condoshopper

    LMRiM & cooper,
    thanks for all the advice. i’ll keep all this in mind when looking.
    i’m currently living like a bum, renting a room in a basement of someone’s house, while waiting out this market with a sizable down payment. so you can see my i’m anxious to move.

  28. Posted by tipster

    No need to live like that. Go rent something nice: bargain hard – 20% off just about anything that has sat for awhile is not hard to get, and watch the asset values shrink from the sidelines. You’ll be paying less than you would if you bought and you’ll have no risk.

  29. Posted by sfrob

    LMRiM – if condoshopper could buy at the low ball level you suggest he wouldn’t have to wait 8 to 10 years to re-sell…he could flip it the next day for a 30% net profit. Banks won’t even accept prices that low yet… and while I’m bearish on SOMA for at least a couple of years, I don’t think we will ever get down to the levels you expect.
    I love you economic insights… but you always dramatically over estimate the bottom.

  30. Posted by waiting2nest

    condoshopper,
    I agree with LMRiM that it doesn’t make sense to buy a studio or 1BR now — esp. if you plan to live there awhile (at least 5-10 years). You may get married and/or have children some day (I’m assuming you’re currently single based on the studio, 1/1 enquiry). Better to wait and buy at least a 2BR when prices go down even further. Good luck to you.

  31. Posted by unbelievable

    Thanks Realist. You are spot on. The economics betweeen buying a $3 mm place with $1,500 HOA dues (NO that is NOT a typo) are not compelling at any interest rate, ESPECIALLY if you know 75% of the building is empty and will be rented out a $3,000- $6,000/month. Millennium is toast, I repeat. Not a bad building, in fact it is beautiful. But, the math doesn’t work. My bet is prices need to come down belwo $1,000/share foot for high end buyers to look in earnest.

  32. Posted by LMRiM

    but you always dramatically over estimate the bottom.
    Well, we’ll just have to see about that :)
    Seriously, though, the exact evolution of asset prices in the future is unknowable. But to bring it back to the subject of this post, the owner of this 3/3 is about to eat a $250,000 nondeductible capital loss, and it could be worse. He is looking to rent it out, and if he finds a renter to subsidize the cash bleed, he will continue to expose himself to the risk of a market over which he has ZERO control. Far from being an empowering decision to purchase a property, he is powerless in the face of market forces he could not anticipate (clearly, or else he wouldn’t have bought the place, or, alternatively, if he had anticipated that the market would decline as much as it has, he’d have already just cut the price quickly to whatever level was necessary to be done with it).
    The irony of it all is, of course, that it probably cost him more to buy this place (monthly nut, after tax benefits) than it would have cost him to rent it. In effect, he was paying to take a risk of an adverse outcome, which proved in hindsight of course to be certain, and even in foresight should have appeared very likely (by 2006 the bubble was obvious, and certain markets in the US wer already declining).
    That’s why I tend to look at ratio type analysis as dependent on the desirability of the asset itself, on an objective basis. Perhaps a 3/3 view property is the type of property that most objective observers would be willing to pay more to own than to rent, and so he has experienced some particularly bad timing (having to sell now) in addition to his forecast error (namely, that prices were in a bubble, and therefore could not be relied upon to approximate fair value). But for a studio or 1/1? No one should make that error of paying more to own it than to rent it, unless (as I wrote) the value of ensuring the stability of the living arrangement is so important that it outweighs the downside risk of purchasing an asset so far above intrinsic value.

  33. Posted by Hijack

    LMRiM -
    There you and your buddies go again. Please don’t hijack yet another conversation. This is a piece about Millennium, no your bearish macro view (which I actually support but is not the topic herein)

  34. Posted by anon

    Cut LMRIM some slack. He actually came clean about his fortune telling ability AND wrote about real estate without even once being snide.

  35. Posted by LMRiM

    Sorry about the hijack :) My post actually referred to the 3/3 Noe condo in the other thread too. Too many windows open at close of market here…

  36. Posted by gowiththeflow

    condoshopper – agreed, wait a bit longer.
    LMRiM I am ok if I use your 150-200x which is fine in the context you state as I plan to be in my newly aquired place (Infinity) about 10 years or hold longer to rent out. If I use your first rent to buy comp based on current CL rents it proves your numbers are either way to dramatic a drop or I am really SOL.

  37. Posted by sfrob

    back on topic… I’d rather buy the 5555 SqFt penthouse than a 1BR in this market… the rich always find a way to get richer regardless of economic cycles… case in point the Wall St bonuses being paid during this historic collapse… so when the penthouse/buyer owner goes to sell, there will be just enough wealthy buyers for the few penthouses.
    that said you can’t ridiculously over pay… but they are “in-contract” and we don’t know that they even paid asking-price, but we can certainly assume they didn’t pay over-asking ala ’04 & ’05
    overall Millenium… I would not buy any unit that isn’t “special” in some major way… in these buildings that’s generally all about the view.

  38. Posted by jamie

    tipsteR – you can let the City’s planning areas define things for you, but it all sits on Rincon Hill’s dirt after all.

  39. Posted by tbonestk

    sfrob “I’d rather buy the 5555 SqFt penthouse than a 1BR in this market”
    lol.
    i think everyone would also.

  40. Posted by Rillion

    LMRIM – the problem with your 125x rent benchmark is that at those prices an investor can buy the place and rent it out at a profit. So if/when prices fall that low, condoshopper would get outbid by someone buying the place as an investment.
    You may believe that places should be cheaper to buy then rent (at least that is what I think you were trying to say with: “1/1s and studios should cost less to own than to buy”) but if it is cheaper to buy something then to rent it, in a logical world investors will buy it and rent it out taking the profit on the imbalance between rent vs buy.
    I know I lost out on a cheap condo once because I was outbid by someone that bought it as an investment to rent out. So investors do compete with people that are buying a place to live in.

  41. Posted by LMRiM

    if it is cheaper to buy something then to rent it, in a logical world investors will buy it and rent it out taking the profit on the imbalance between rent vs buy.
    Not if they think the price of the asset is going to go down, not if they think that rents will fall, not if they think that interest rates are going to rise putting the value of the asset at risk. The pendulum swings from excessive optimism to excessive pessimism.
    Right now, I am looking at distressed SFR properties in NY State, where the properties are $80-110K, and the taxpayer is paying $1600-$2000 per month in rent (through the Section 8 program). How can this be? I expect to do 1 or 2 of these to get started, and I’ll let SS know how it works out by the end of 09.
    I am hearing anecdotally that Stockton properties are selling for $80-100K and bringing in $900/mo rents, but I don’t have any direct experience. I know, I know. Sf is different. We’ll see wheh it is all said and done :)

  42. Posted by Jake

    LMRiM: when did the bubble begin in your opinion? Just interested in how far you see prices dropping in SF proper.

  43. Posted by Rillion

    “I am hearing anecdotally that Stockton properties are selling for $80-100K and bringing in $900/mo rents, but I don’t have any direct experience. I know, I know. Sf is different. We’ll see wheh it is all said and done :)
    What you mean there are people buying really cheap properties and renting them out? What about the risk that they will go down more, the interest rate risk, etc.? Oh yeah, the 8% income stream is compensating them for that risk. Wonder if any of those investors bought house that someone else would have bought to live in if it had been a little cheaper.
    Good old supply and demand, sure you can hope that a place that rents for $2,000 in SF will fall to $250k but don’t be surprised if the demand for that place at $250k is more then just one person. Even in this environment.

  44. Posted by High Rise Harry

    It would seem to me, in a world of 6 billion people selling a $10,000,000 penthouse in a highly desireable and world famous city is NOT a huge leap.
    Family members of mine have been looking in Las Vegas at penthouse properties and the reality is there aren’t that many “true” penthouses available. If it’s an older building it’s already built out like the one they purchased in San Diego, a 2500sq foot half floor which is a 1 bedroom and open floorplan. If the pool of buyers is say 50,000-65,000 people in the world who can afford that you’ve got 50,000 to 65,000 different life style personalities… maybe you actually want to live there full time and don’t want to tear it up and redesign it. In the case of SF, how many penthouses are on the market in “raw” condition that you can design without having to tear apart first… that being said how many VERY large penthouses are there regardless here? I think that it’s naive to be suprised that someone would shell out $10,000,000 for this unit, when you’ve got people a few months back knocking on the door of the gold coast and offering $80,000,000 for a house that’s not even for sale (I know I probably have the facts wrong on the amount I’m just shooting from the hip here).
    I can tell you based on my own familie’s purchasing style we are not interested in buying units that are raw, nor totally reconfiguring units that are built out… if we have to wait we do, and that’s exactly what they are doing in Las Vegas.

  45. Posted by High Rise Harry

    Sorry about the typoes.

  46. Posted by Dude

    “you can hope that a place that rents for $2,000 in SF will fall to $250k”
    Check out 1462 Quesada in Bayview. I know it’s not really in San Francisco, but it’s priced at $199K, and with some renovation, could probably rent for close to $2,00/month. Not the exact metric, but close. And zillow says it’s worth like $440K. Instant equity!

  47. Posted by Spot on

    Unbelievable, you are right regarding being able to rent for less than you can buy.
    I rent in Rincon. After a lengthy courtship I realized that in the short term Rincon was unwilling to drop the price to where I believe it should have settled. I backed out and now rent a great, high level unit for about 1500-2000 per month (depe ding on leverage) less than what my nut would have been had I purchased a similar unit. I pay no property tax, no horrible HOA, and a meager renters insurance.
    The lesson: now is NOT the time to buy, just do the math.

  48. Posted by Proof

    Unbelievable, you are right regarding being able to rent for less than you can buy.
    I rent in Rincon. After a lengthy courtship I realized that in the short term Rincon was unwilling to drop the price to where I believe it should have settled. I backed out and now rent a great, high level unit for about 1500-2000 per month (depe ding on leverage) less than what my nut would have been had I purchased a similar unit. I pay no property tax, no horrible HOA, and a meager renters insurance.
    The lesson: now is NOT the time to buy, just do the math.

  49. Posted by LMRiM

    Jake,
    I think the bubble got started in the late-1980s (at the latest). However, there have obviously been significant real wage gains, and some real improvement in SF, since the 1980s (that’s nothing special to SF – other cities that benefitted from the trend increase in the financial economy also saw real improvement, most prominently NYC, Boston, and especially Washington DC, which taxes all the inflated “wealth”). Additionally, wage inflation and other generalized price inflation has occurred. So I wouldn’t expect late-1980s nominal prices :)
    It’s just a risk-adjusted guess, like all bets on the future, but I think 1998-99 prices are on the table for a bottom. Obviously, that’s just averages, and individual properties could do worse or better. It obviously doesn’t seem such an outrageous prediction, now that the lower tier MSA is back to 2000 and we are already seeing (very early in this unwind IMO) individual properties that are close to or below 2000 prices, but these certainly are the outliers for now.

  50. Posted by 44yo hipster

    Lmrim- $1600-2000 for Section 8 homes in the $80-100k doesnt sound right. Either the gov will quickly reset those rstes or there is somrthing going on there that you are not aware of.
    Investing in out of state prop, especially in areas u are not familiar with is receipe for disaster. I’m sure those areas are pretty bad. Maint cost will be high. Tenant can destroy property, gov has mandatory inspections, and u are responsible to do the repairs. Yes u can succeed in sect 8, but u bettrr know what the hell youre doing! This aint like stock picking- all rental situations are not created equal.
    Same thing w/stockton or vallejo. Ive heard of the $80-100k distressed homes with the $800-1000 rents. A. Im sure they are in bad hoods- may be tough to keep them rented, especially as the nicer tract homes become avail from desperate owners. B. They probably need repairs which coild easily add another $20k. On cheap homes evrn a $500 repair is significant. C. Future Upside/appreciation is limited. When econ improves middle class buyers will want the newer sub divisions and will pass up the older crappier hoods. Their values tend to stay the same and attract the same lower class tenants, who cause mord wear and tear pn your cost sensitive asset. Beware!

  51. Posted by LMRiM

    44yo hipster,
    Thanks for the advice, sincerely. I’m actually from not too far from there, so we know the area very well. I’m doing it with my brother who is a cop for 15 years in the area, is very active in local politics, and has rehabbed two houses and built his own house entirely with his own hands (and some help from friends and the local “labor force” that hangs out on street corners). I’m really looking into these first houses as a partnership – he’s going to be retiring in 5 years or so (at 44 years old like you! but with annual $100K+small COLA and full health care from the taxpayer for life, or at least as long as the unions maintain their stranglehold – which is looking better every day under Obama!), and I’m looking to get a business started with him that could be up and running with some scale when he retires from active duty. The investment amounts and returns for one or two properties are not material to me, so we’re looking at this as a learning experience.
    We’ve got a fireman friend who has about 10 of these Section 8 homes already out there, so we’ve got pretty good visibility into how it works. The Fed money is always disbursed through the local county and town officials, so it’s not really an issue with inspections, etc. From what I understand, the real key is getting the right tenant – i.e., single mother with kids. Even if they break all the Section 8 rules, they never get the vouchers cut off (when the vouchers get cut off for tenant violations, no $$ and you get stuck with the hassle of evicting them), and they never move (kids are all going to school for free on the taxpayer’s dime). Like I said, I am in learning mode still, and any insights are appreciated.
    The rental ratios do appear high, and I am looking into how attainable these ratios really are on a practical basis. The properties are not really in terrible areas – just run down former farming, light manufacturing and regional towns that basically withered as the country stopped producing anything other than paper. It’s tough to make a direct comparison to CA because no prop 13 means that taxes are not fixed there, and generally run $3-4k on a $100Kish 3/2 SFR in those towns. Still, it’s looking like cap rates above 12% should be very possible, which I guess is reasonable compensation in view of the risk. Amazingly, there seem to be more vouchers than eligible houses floating around there. Some Democrat politician is working overtime to get Central Long Island some pork!
    I don’t expect price appreciation of real estate assets in the medium term, there or in CA. The value will come in rising government payments as Obamaponzinomics entrench more people into being wards of the state. Half the country is going to become Section 8 types. At least that’s my hope :)

  52. Posted by NoeValleyJim

    condoshopper, real estate cycles tend to be very long, like a decade or longer, so if you are trying to time the bottom, you should be in no hurry to buy.
    Back in the old days, one of the rules of thumb for real estate purchase was that you should never buy a place you don’t plan on living in for at least seven years. Like a lot of the old rules, this one appears to be back in vogue.
    I am personally just sitting on my down payment and watching, hoping that a nice big SFH in Noe comes down to what I can afford. I expect to wait a while, unlike many posters here, but that is okay, what I have now is fine, too.

  53. Posted by 44yo hipster

    Lmrim- it certainly sounds like you are well prepared to try this venture out. Partnering with your brother who lives there makes a big difference! (its just that i see too many people buying out of state based on a trip or two, relying on a prop mgmt co to manage the affair, and consequently getting burned by the experience.)
    Your scenario could be successful if you can keep the units rented effectively (control vacancies) and keep maint & repairs in check (which have a huge roll in affecting profits with cheap houses.)
    These are not investments i have personally tried. My model has always been based on buying RE that can be developed into a higher and better use, thus insuring an upside due to development efforts.
    Of course the big bucks are made with appreciation, and that was the case in SF until recently. It will be interesting what the price drps will be on 2-6 unit properties in the city. They have already softened, but their value is also based on the income they generate. Unlike a nice home in noe/pac heights, which could drop alot, investment RE may drop less.
    The way i see the higher end homes, $2 mil+, is that they did hold up well until recently. At the start of the recession, wealthy people still had their jobs and investments intact, while the lower end (dist 10, the infamous not real SF) was already dropping. But since sept 08, when all hell broke loose, the more affluent also were hit big time. And when we reach these dire economic conditions, the higher end RE can actually take a bigger hit percentwise than the moderate housing.
    Now the interesting question is if this scenario ‘scales’ to expensive city vs.cheap city. For instance vallejo has already fallen 40% and started its decline 1-2 yrs ago. Real SF only began its slide a few months ago and is down 10%, maybe 15 (excl soma, dist 10). I don’t think the lower end will recover first-SF, maybe marin and san mateo too traditionally fell less tham outlying burbs, and typically drop less/recover earlier. The job base, money and desireability are there more than outlying areas, and once a macro economic recovery arrives, these ares should pick up first.

  54. Posted by EBGuy

    San Francisco’s Tallest Condo Cuts Prices 15% as Glut Increases. Did someone say glut?
    The cuts won’t last “forever,” and Millennium may raise prices if the market improves, Baumert said.

  55. Posted by kathleen

    Touring a buyer through several new developments, in SoBe, SOMA, Rincon, FIDI, and Mission Bay.
    The very conservative, waiting, cautious buyer, called me back and said, “I can’t believe I am saying this, but the Millenium looks like a real value.”
    That is the marketplace talking.

  56. Posted by Tommy T

    any body know how many units at Millennium are under contract, how many units have been sold since the 15% price drop 3 months ago?

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