February 3, 2009
The Scoop: Archstone-Smith Negotiating To Acquire Argenta (1 Polk)
The SocketSite scoop three months ago: the 179-unit Argenta (1 Polk) was on the market as an apartment building (constructed as condos). The scoop today: according to a plugged-in tipster, Archstone-Smith is in negotiations to acquire the building and begin renting it out.
From our tipster:
Archstone originally turned down [an] offer to buy The Argenta. The sellers of the property have gone back to Archstone-Smith now, with a lower offer…They are working on hammering out a deal.
Once Archstone closes on the building a leasing office will go in, and rentals will start "immediately" according to my source...
Hard numbers and confirmation when the sale closes (assuming it does).
First Published: February 3, 2009 12:00 PM
Comments from "Plugged In" Readers
Does anyone know if they are still trying to sell Fox Plaza?
Posted by: j at February 3, 2009 12:21 PM
With all these condos turning rental, plus several apartments coming online, you have to be a seriously delusional optimist to expect rent increase in 2009, with or without the recession.
[Editor’s Note: We love it when plugged-in readers put it all together. The Marcus & Millichap estimate for new San Francisco rental units in 20+ unit buildings for 2009: 400. The SocketSite sum of simply Avalon III, Strata and Argenta: 631.]
Posted by: jj at February 3, 2009 12:23 PM
Wait until the end of spring, when the sellers of condos can't get last year's prices and don't want to pony up over a hundred thousand dollars to pay off their mortgages. There will be much more added to the rental market.
Bleeding $2000 per month slowly may be preferable to chopping off your arm. (pun intended)
All of this stuff is as nice as anything you can buy, at a lower cost, and without the downside risk.
Posted by: tipster at February 3, 2009 12:33 PM
I think the Argenta is a beautiful building, unfortunately now an apartment building and unfortunate location.
Posted by: ArgentaFan at February 3, 2009 12:37 PM
Didn't Tishman buy Archstone? Guessing the two are running side by side as sep companies but regardless I am guessing the advisors for both weigh the rental and sales activity for SF in sync? Tishman is clearly very confident in the game plan they have drafted for the SF market both rental and sales.
Posted by: gowiththeflow at February 3, 2009 12:44 PM
I actually like the building and location over Soma Grand. The only negative is the huge wind tunnel on Polk right in front of Fox Plaza. The building looks good especially for rentals. Location isn't that bad with Market and Van Ness, you can get to any bus line you desire.
Posted by: tbonestk at February 3, 2009 12:50 PM
I wouldn't hold up Tishman as a particularly savvy evaluator of rental market trends and opportunities. They are heavily involved in one of the most spectacular messes in the residential realty world (and the most expensive I think in history), which is falling apart over the inability to attain projected rents:
Word is that CalPers is going to lose $500M on this deal (Stuvesant and Peter Cooper Village) in NYC when this goes belly up.
Posted by: LMRiM at February 3, 2009 12:54 PM
Yes this project, not a good one to have on the books but in all fairness they should not have banked on things beyond their control such as deregulating apartments. Perhaps they were a bit too optimistic on the timing of the phase out.
However, IF they can dereg the other 600 they should be ok - catch is what to do between now and when ever that happens given the sticky financial situation.
What I do find interesting relative to specifically the Archstone deal is the deal was in part with Lehman right?
Posted by: gowiththeflow at February 3, 2009 1:23 PM
If rentals, they are not under rent control, so the owner has a lot of leeway for later sale or continued rental at market value. A much better investment than anything where you have to deal with the rent people. Over time, a "normal" income property investment, yet in the People's Rep of SF.
Posted by: Conifer at February 3, 2009 2:00 PM
If you live in a rent controlled building, expect a rent increase. It is insanity for a Rent Controlled owner not to raise rents each year by the regulated amount, 60% of Cosumer Price Index.
f you don't agree with your rent increase, you can you can always move to one of these new, non-rent controlled market value homes.
Posted by: Kathleen at February 3, 2009 2:24 PM
There is no job creation in San Francisco. Having that would be the core of a strong rental market.
The interesting question is what argenta will sell for per unit. If they sell for say $450,000 per unit that would be a huge write off by the condo developer- at least $150,000 per unit.
That would also require the new landlord to have rents grow from $3.00 psf to $5.00 psf to make the proforma work.
That means they need downtown / rincon hi rise rents at this location - so a 700 sf one BR rents for $3500 per month. at one polk street.
Posted by: Louis at February 3, 2009 3:33 PM
"The interesting question is what argenta will sell for per unit. If they sell for say $450,000 per unit that would be a huge write off by the condo developer- at least $150,000 per unit."
Initially, the prices were going to range from studios at $500,000 to 3 bedrooms topping out at $1,200,000 (per the marketing materials I used to receive). I can only assume the developer will be taking a substantial loss on their expected unit price given the recent turn of events. As for renting at 1 bedroom for $3500/month, even when rents were skyrocketing that was unrealistic for that location. If Tishman does buy this building, they must be getting a pretty sweet deal...
Posted by: pica1986 at February 3, 2009 5:47 PM
Of course this all depemds on the price. If they get a good deal, this wcould be a good buy/hold/resell in a few yrs when housing mkt returns. Dont forget, when the mkt returns these guys will be out the gate selling vacant units, while other developers will be fighting SF planning dept for permits on their optioned parcels.
I just wonder where they will get the reserves to hang onto this thing, and if they can lease effectively. That mega property in NYC they brought (stuy...cooper)...man they must have been hitting the crack pipe pretty hard w/their bankers when they put the future non RC rent rolls. They were probably partying with the lembis too...they had the same prob, and had to relinquish 51 bldgs recently. Too bad.
Posted by: 44yo hipster at February 3, 2009 6:33 PM
Yeah, if they can get a good price, this is probably a great long-term investment. With more housing getting built in mid-market, Hayes Valley, and in the Market/Octavia zone, and without the entrenched homeless and drug problems of the Tenderloin and Mission, this area (Culture Gulch?) has excellent prospects.
Provided you can make the rentals earn a profit for a few (or more) years.
Posted by: amused_in_soma at February 3, 2009 8:02 PM
from todays WSJ --
"Lehman plans to tap some of its $6 billion cash hoard to prop up selected real-estate plays. For instance, Lehman received the court's permission to allocate $230 million to apartment giant Archstone to keep it afloat. Lehman, with Tishman Speyer Properties, Barclays PLC and Bank of America Corp., took the apartment company private in 2007 for $22 billion. Archstone has struggled to sell assets to pay down the massive debt used to make the purchase."
Maybe the source of this story lead has good info but one has to be sceptical given the situation of the Archstone acquistion. I think this is a B building in a C location, and in order for the buyer to get a "deal" the developer would have to take a complete loss of equity, the lender now be in control of the asset, and take a write down of their loan.
Posted by: Louis at February 3, 2009 8:20 PM
Interesting, and not surprising. Very decent building adjacent to some great neighborhood areas (Hayes Valley, Deco Ghetto) in a truly unfortunate location - major wind tunneling, minimal sun for three sides of the majority of the building - and who on earth wants to look at Fox Plaza? But a new apartment is a new apartment. Hope whoever rents there enjoys it.
Posted by: ebayj at February 3, 2009 10:54 PM
Urban housing sold edgewater for just under 600k per unit(leased up). I cannot see this thing coming anywhere near that. Maybe 425k per door i give it that price only because the have a condo map recorded (I presume)
Posted by: jimmythekid at February 4, 2009 5:11 PM
Good article on the Speyer family (the Lembi's of NY) and the bad decisions they made in the last few years (losing way more than the Lembi's did):
Posted by: FormerAptBroker at February 6, 2009 8:42 AM
FormerAptBroker - thanks for the link to the Speyer story. As LMRiM noted above, what the hell was CALPERS thinking in giving $500M in public funds to these idiots?
Posted by: FSBO at February 6, 2009 9:08 AM
I just finished the article, too. Thanks.
LOL. The New York guys put in $56M of their own money - no recourse, no collateral (other than the project, in which they were only risking $56M). And they suckered the Cal pension fund into putting $500M!! I take back what I said about Tishman. Just like for the fraudsters who run the NYC banks, California has proven to be a very fertile hunting ground for suckers. I bet Tishman has already pulled more than $56M out in management fees :)
Posted by: LMRiM at February 6, 2009 9:14 AM
Here's the key quote from that article:
According to people with knowledge of the deal’s structure, Tishman Speyer contributed $56 million of its own money to the $5.4 billion purchase price and didn’t use any of its other properties as collateral. “Jerry is a lover of nonrecourse debt and other people’s money. He liked deals where he could contribute sweat equity,” one real-estate investment banker says. “They have so little money in, and they make so much in management fees, they have nothing to lose when it goes under,” a former Tishman Speyer staffer said.
Didn't Calpers also get suckered by Lehman into blowing up a boatload of cash in that HUGE parcel of land north of LA (can't remember the name of the deal)? A few months ago, Mish had a funny piece about Calpers and residential real estate investing:
I can't find a cite now, but I also recall a lot of press last spring/summer about Calpers investing heavily in commodities "on the advice of its investment advisor, Goldman Sachs", of course only a few months before the commodities markets completely collapsed (except gold, :-) ). No wonder the California budget is such a mess!
Posted by: LMRiM at February 6, 2009 9:33 AM
Is RICO still a law? Doesn't the term Racketeer Influenced and Corrupt Organization fit Goldman Sachs to a tee?
Posted by: FSBO at February 6, 2009 10:21 AM
The new update is that Riverstone Residential came through with the winning offer on the Argenta. I was told it's a done deal. Archstone just couldn't nor wouldn't step up in price.
[Editor's Note: While it’s a done deal that Riverstone Residential will be managing Argenta, Anka isn’t selling: The Argenta (1 Polk) Scoop Redux: Riverstone Residential To Manage. Cheers.]
Posted by: Ryan at March 2, 2009 12:56 PM