818 Van Ness: 8/11/08 (www.SocketSite.com)
It was a little over a year ago we broke the news about Artani (818 Van Ness) suspending sales and going the rental route. Today, we break the news that they’re about to dust off the sales center and suspend their rental program.
Current residents of the building (the 54 units of which are nearly all rented) will be given the first right of refusal to purchase their units at a discount to 2010 “market rates.” Unclaimed units will be made available to the public in April.
And while we (nor they) have exact pricing, according to a plugged-in source the 2010 market rate is expected be set at a discount of around 20-25 percent from 2008 prices.
The SocketSite Scoop And Rumor Confirmed: Artani Suspending Sales [SocketSite]
The Artani (818 Van Ness) Opens And A Plugged-In Reader Reports [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by EBGuy

    Now that’s funny; the Coalition of the Willing is growing.

  2. Posted by emmittG

    Interesting. I toured this building late 2008 but i wasn’t ready to buy at the time. I remember thinking the building was solid with nice finishes–seemed a lot more quality than other new projects I had seen. very cool roof deck and convenient location for my commute. I will definitely go back to check out what is available and the new pricing. I’ll report back!

  3. Posted by condoshopper

    won’t it be difficult to sell 52 renter-occupied units given SF’s rental laws?

  4. Posted by RSVP

    My understanding is that the buyers of the occupied condos will have to give their tenants notice to vacate after the close. The developer can not do it.

  5. Posted by yao

    it would be nice if socket site included a link to the development’s official website in the links section. ya, i can search, but i’m lazy.

  6. Posted by condoshopper

    i was just thinking wouldn’t it better to have sold them when they were vacant, instead of after they are rented out. it’s not like the market has rebounded (or was expected to rebound) since one year ago.

  7. Posted by R

    Plus, if you bought one of these and OMI the tenant, you gotta pay them.
    And if the tenants have time on the original lease, you can’t kick them out until the lease ends…

  8. Posted by Brahma (incensed renter)

    condoshopper wrote:

    won’t it be difficult to sell 52 renter-occupied units given SF’s rental laws?

    No. If the developer is pricing the units near the market-clearing level, then the amount of “difficulty” in dealing with tennant-occupied units during and after the sale will be baked into the cake. The only question is what that price will be and how realistically it will reflect that premium.

  9. Posted by Paragon Agent

    This building is great, it was just a case of bad timing…it came on the market at the worst possible time and sales were painfully slow so they went the rental route. It’s a much better now but unfortunately you have the tenant issue to deal with. OMI’s are fairly simple, but you do have to pay relo fees. Not sure about the FHA status. Will have to check on that.

  10. Posted by tipster

    If the developer is smart, he’ll offer the tenants $ to leave and most, if not all, of the units will be vacant and everyone will be happy.
    Except the developer, who gambled that the market would “come back” and now clearly realizes that isn’t going to happen any time soon, and that prices are continuing to sink, so getting out this year is better than getting out next year.

  11. Posted by scurvy

    Does this mean that the callbox at the entrance will finally work?

  12. Posted by missionite

    Viable rental strategy: rent condos that are likely to convert back to sales. Enjoy the digs for a year or two, and then recover a good portion of your rent paid when the new owner has to buy you out.
    I need to plug relocate fees into my rent vs. buy model.

  13. Posted by RSVP

    I called a client about this building. Her biggest concern is what condition the units will be in after the tenant vacates, especially if they vacate after the close of escrow. I told her that any damages caused by the tenant would be paid for out the tenant’s security deposit. That still didn’t give her a lot of piece of mind and I couldn’t offer her any more reassurance.
    If the prices are now 20-25% below the 2008 pricing, that’s good news since the current market value is that or less. Who knows? There is probably some negotiating room there too.
    It’s in a decent location and nice finishes. Some condos even have fairly decent sized patios. No common amenities that I can remember except parking. In San Francisco, that’s an amenity to me.
    If I remember correctly, the only hesitation my client had in 2008 was that the HOA monthly dues were a little on the steep side.

  14. Posted by J

    Yeah, but I’m sure the tenants would like to move to take advantage of declining rents anyways…Unless they got a wonderful deal last year.

  15. Posted by RE

    This building is not subject to rent control therefore there will not have to be any OMI’s or fees paid to tenants after their lease is expired. (60 day notices will be required, i’m sure) Likely the developer will work with the tenants individually to vacate each unit prior to offering it for sale.

  16. Posted by killbotkondo

    ‘zactly. Anything built after 1978 is not subject to rent control so once the lease expires or goes month-to-month the landlord at that time(developer or new owner) can boot them out in 60 days. Its next to impossible to show rental stock with tenants in situ so the developer will market these as they become vacant/tenants move out. Its a pretty simple and organic process. I did it all the time during the boom with rental to condo conversions.

  17. Posted by ex SF-er

    I think this is what we call “shadow inventory”.

  18. Posted by Embarcadero

    What motive would any of the tenants have for continuing to pay rent once the unit is sold?
    If I were a perspective buyer, I would demand a guarantee that the unit is in perfect or near perfect condition. Maybe you could make closing contingent upon having the current landlord vacate the premises and turn the apartment over in near-new condition?
    Otherwise, I can’t see why the tenant wouldn’t stop paying rent and take all the appliances before the final move-out.

  19. Posted by jon

    People don’t actually buy sight (or perhaps site) unseen…..do they?
    Forgetting about judicial sales.
    I’d make the sale contingent upon a final walk thru after and only after the tenant has vacated.

  20. Posted by Brahma (incensed renter)

    What motive would any of the tenants have for continuing to pay rent once the unit is sold?

    Umm…avoiding getting sued for unlawful detainer? I don’t understand how a sale of the building or individual unit somehow automatically invalidates a lease agreement, and most leases take into account that the unit could change hands while the tenant is occupying it (at least mine does, and my landlady is one of those cheapskate “bootlegers” that does everything herself).

  21. Posted by anon

    “I’d make the sale contingent upon a final walk thru after and only after the tenant has vacated.”
    I’m unclear on why people wouldn’t request this generally in a sale contract. Are people that used to waiving contingencies from the boom days that they don’t think about this stuff?

  22. Posted by jon

    I always did a final walk thru. But then, I never liked dealing with a property that was occupied by a renter. It’s just an additional entity you’re stuck with dealing with. The owner, if they want their money, has some incentive to leave. With the property in good condition. Renters….sometimes not so. Make that oftentimes.
    This was actually a bad strategy for the developer, rents of 2500/1 br….more trouble than it was worth. And for one year? What were they thinking?

  23. Posted by eddy

    Seems this is mostly a simple attempt to convert renters to owners. Any new buyers that emerge is simply a bonus.

  24. Posted by radar

    Any purchase contract has a clause for a final walk-through of at least 5 days before close of escrow. It is built into the contract, you don’t have to add.

  25. Posted by SFRE

    This is a bad location, 20-25% off 2008 prices is a joke. Especially since prices in much better locations have dropped 30-40%

  26. Posted by D

    I lived near there for years. It’s a bad neighborhood, and probably isn’t getting better anytime soon. ~$450K ($599K – 25%) for a one-bed in this neighborhood + $500/mo HOA seems overpriced. Then again, I thought these were overpriced to begin with. The Walgreens two doors down is the saddest and sketchiest pharmacy I’ve ever been in.

  27. Posted by anonee

    i’m grateful that there are some who post here that actually have some experience and knowledge to counter all the misinformation that gets posted.
    thanks to re and killbot for maintaining
    “a high level of discourse on the topic of SF real-estate”.

  28. Posted by SF-Rezzy

    Ummmm, but can someone tell me where these 30-40% price reductions are in “much better locations”?
    I’m not trying to start a fight, I just think stats like this get tossed aorund on this site all the time. Thus far, the closest I’ve seen to such reductions in good areas are gone (like January ’09). As somebody who’d love to be able to afford a place in the City, I’d love it to be true.

  29. Posted by SFRE

    Check out the Palms #717, purchased for over $940k, in contract for $660k. I am sure others can give you better examples.

  30. Posted by SF-Rezzy

    Thanks SFRE, I do appreciate it. BUt I havr to be honest, that’s a 30% drop, in a short sale (or foreclosure?), in what is widely regarded as the worst piece of new construction to hit SOMA in the past decade, in a neighborhood that is not a “much better location”.
    I mean, good areas, decent product, 30-40% off. Available to a buyer that doesn’t have over 25% down.

  31. Posted by J

    Looks like we have a troll…

  32. Posted by spencer

    sf-rezzy. there are many examples besides the Palms in SOMA. … where prices have dropped 30% on condos…..280 King, 200 Brannan to name a couple…
    regarding 25%down, you can get in some of these with 3.5% down. so if you can scrounge up 25K, you can get into a 2bdr in SOMA. but buyer beware…these have plenty of risk left in them.
    the artani is in a shitty neighborhood. if the 2bdr here get down below $550K, there might be more interest.

  33. Posted by SFRE

    @SF-Rezzy…who cares if its a short sale or foreclosure? The price is the price, and I am sure the people who own units can’t say “Oh well, that unit doesn’t count as a comp, because it was a foreclosure”.
    If its sold, it counts…hence the real life 30% drop.

  34. Posted by mac

    A short sale or an FC isnt a comp. Just in the same way that a TIC isnt a comp to a similar condo. People know that a short sale is difficult to pursue and therefore know that theres probably a 5-10% discount to a regular purchase. Not sure how much the FC discount would be.. it might be a lot more.
    However even without short sales I can see plenty of 30% off at the Beacon etc. I have seen a nice condo in Pac Hts go off the market at under its 2001 prices.

  35. Posted by irwin fletcher

    I almost rented the corner penthouse about a year ago. It was/is a very nice unit and had 2 parking for around $4000/month I believe. Glad I didn’t now…. I think.

  36. Posted by anonee

    “I have seen a nice condo in Pac Hts go off the market at under its 2001 prices. ”
    price/sq.ft?

  37. Posted by Embarcadero

    Wait – why isn’t a foreclosure or a shortsale a comp? My understanding is that these are the sales that are setting prices these days. In effect, in a largely illiquid market, short-sales and foreclosures are the only real mechanisms for price discovery.
    The condos at 199 New Montgomery are selling for 20% less than they did in 2007, some below their construction prices (e.g., unit 709 was purchased in 2005 for 510K, is now listed as a short sale for 540… My guess is that it sells for south of 500).
    I’m presuming that the idea here is to sell when the leases end and the tenants are gone. If I were a buyer and someone offered to sell me a unit that was occupied (even w/out rent control), I’d be afraid of the tenant not paying rent/trashing the place. It’s one thing to cross a RE developer with staff attorneys, it’s another thing entirely to bet that an individual buying a place in the ‘Loin would not be as likely to litigate.

  38. Posted by cloud

    These are used condo units.
    This is one area that this forum has not addressed. While the location is excellent, it can be noisy from all the foot traffic and it is next to the Tenderloin. It is crazy that the Artani management would compete on prices with new condo prices as the Artani condos are used now. They should be pricing it similar to used cars.

  39. Posted by Anon

    I like this whole price condos like a used cars. Essentially, you’re suggesting condos depreciate much like cars after use, becoming worthless in 10 years.
    If that’s the case, why buy at all and have false expectations of appreciation? Might as well lease…

  40. Posted by The Milkshake of Despair

    “why isn’t a foreclosure or a shortsale a comp?”
    The standard industry explanation is that these are “stressed” sales and therefore are not valid comps. But conveniently the same industry stats do include stressed buy-side sales, for example when an employee is transferred and feels that they have to buy before the school year starts. Or buying before a government grant program expires.
    In my opinion, any sale that is an arms length transaction should count towards comps, including foreclosures and short sales.
    “They should be pricing it similar to used cars.”
    Granted, there is some perceived value to the “new condo smell”, but real estate should not depreciate the same way that cars do. That is ridiculous.

  41. Posted by mac

    re comps
    Ask yourself this. Lets say theres two exact same condos for sale in a bldg. One is going for a million and the other is going for 950k. The latter is a short-sale. You know that its going to take a long time to actually get approval on the short sale (only 50% of them go thru in SF I read somewhere).
    So.. you need to buy a place, and the short sale will take 4 months and it may not even go through. Or, the one next door is ready to buy for 50k (or some number) more. At SOME price discount its worth that wait and risk. But what is that discount?
    Thats the short sale discount. Therefore should another buyer who wants to buy in the same bldg a few mos later use the short sale price as a comp to a regular sale that he is anticipating? I dont think so. Sure. Its useful info. But I would suggest that the actual comp is the short sale price plus a percentage.
    With regard to foreclosures a similar thing happens. Even a great discount in fact. Again, good info, but it doesnt tell you how much a similar non-foreclosure should go for.

  42. Posted by sfrenegade

    “A short sale or an FC isnt a comp.”
    That’s just not true. A short sale and a foreclosure are always a comp, just like an probate sale is a comp and moving due to divorce is a comp and moving due to a new job is a comp.
    All sales are comps, because all sales are price-setting events. Not that I buy the premise at all, but if the claim (as mac said above) is that short sales are 5-10% lower than “normal” sales, then at minimum you have a price that’s within 5-10% of correct. In reality, the market depends on all types of price-setting events, not just realtor-brokered non-short no-repairs-required contingencies-waived sales (or whatever bizarre conditions people would like to place).
    “Essentially, you’re suggesting condos depreciate much like cars after use, becoming worthless in 10 years.”
    I wouldn’t say 10 years unless it was incredibly poor construction, but condos certainly require maintenance and have a lifetime, just as SFRs do. Real estate is a consumable resource. Why else would you have the concept of a fixer?

  43. Posted by RSVP

    Bank appraisers look at all condo sales as comps for resales and refinances, regardless of what kind of sale it is. Same is true for single family residences, stock coops and TICs.A sale of like kind is a sales comp period. If your next door neighbor’s property sold as a distressed short sale or foreclosure, that’s a comp to your property whether you like it or not.
    Residential property sales are not like used cars sales. New cars start losing value as soon as you drive them off the lot. Unsold current models are discounted by the end of its first year off the assembly line. Used cars can be found for pennies on the dollar. The supply always outweighs the demand.
    Residential property is usually worth more as the property ages (until it reaches its function obsolescence) because they ain’t makin’ anymore land to building them on. It’s the concept of supply and demand.
    San Francisco has been glutted by new construction the past few years. In light of the economic downturn, job losses, and competition it has taken a toll on these projects. Since new construction of condos is a numbers game, developers can offer discounts or accept offers less than asking when sales are slow due to the economy. They have investors who want the project sold.
    I think that by the end of 2011 or beginning of 2012 the existing inventory will all be gone (including the coming soon One Hawthorne). When that happens, the prices of new and resale property values will hold steadier and begin to rise again.
    With that in mind, I’d say whoever is serious about home ownership in San Francisco should do it within the next 12 or possibly 15 months. After that, if the market has stabilized, there won’t be any deals left. You could even find yourself in a lottery situation. Remember those days?

  44. Posted by Marie

    Please correct me if I am wrong, but doesn’t this fit into the SF Subdivision Code Article 9 “Conversions”? If it is, then the subdivider shall bear the cost of moving expenses of any tenant who relocates from the building to be converted. It doesn’t matter if the building is under rent control or not…the tenant still gets the reloc fees. Even if this is considered a OMI, the tenant is still deserving of the relocation benefits. It’s no fault of the tenant that he is being vacated (even if you are on month to month now, right?) BTW, I’m pretty sure that the notice to vacate will not happen after the buyers of the occupied condo close because the words used were “Shortly, you will be receiving a notice to vacate”. Anyone have the right answer for relocation fees or not??

  45. Posted by TallGuy

    The owner is crazy good about upkeep in their rental properties (I live in another one of them). The maintenance guy does a better job with common and unit-specific upkeep than most homeowners. The whole ‘used’ line here is annoying. I prefer broken in as opposed to breaking things for the first 6 months.
    Now, regarding the pricing, I bet there is a website that will keep us plugged in to that right?

  46. Posted by OneEyedMan

    That “new condo smell” is the off-gassing of VOCs from the paint, sealants, carpeting, etc. Better to wait til it’s gone before you move in. Bigger issue to me would be expiration of factory warranties on kitchen appliances, washer/dryer, AC unit.

  47. Posted by RSVP

    As far as new appliance warranties go, I’m assuming that although some or all of the units had been rentals while the developer still owned the building, it would be the new buyer’s responsibility to send in the registration form in order to establish the warranty period. That start date would be the close of escrow date.

  48. Posted by OneEyedMan

    ^^ Not unless the renters were not allowed to use the appliances or run the AC. This part of the unit is like a used car – you get the months left on the original warranty, that’s it.

  49. Posted by Anon E. Mouse

    ^^ agree with OneEyedMan. The registration form just serves as notice to the manufacturer that someone bought an appliance. But the warranty starts from when the appliance is purchased/used regardless of whether the manufacturer has notice of the buyer. Otherwise you could game the system.

  50. Posted by NotAnAttorneyBut

    Marie: don’t know the exact facts here but I would guess the units were mapped as condos (wrt CA Map Act and SF Subdivision Code) prior to notice of completion, certainly prior to renting (it would be a dumb developer and an even dumber lender who didn’t do that) – so likely these would not be considered “conversions” under state or local law. And I’d bet that the relevant legal disclosures were made to rental tenants.
    As an aside, I would guess that any developers in this position have been spooked by Avalos and Chiu’s recent antics – that may be why developer has chosen to re-market for sale at this time rather than waiting for a market upswing.

  51. Posted by SFAnnie

    I’ve lived at Artani for a year now. We knew when we signed our original lease that they intended to sell them “within a couple of years”….so we were prepared. I’m not sure how many of the residents will want to buy, as the prices are way out of range. Many condos of this size in better areas are going for much less. This is a fairly crappy neighborhood, but the amenities at the Artani are nice. Makes up for part of it, I’d say. Downside is the ‘hood isn’t going to get much better. Lots of homeless lurking around, dirty streets, noisy buses. The prices will have to come down another 20% minimum before I’d be interested in buying. Most tenants have opted out of the purchase options, even though I hear there’s supposed to be “incentives” to stay. Perhaps it would be worthwhile to wait it out, but I’m afraid of losing a better deal in a more upscale area.
    That being said, time will tell……

  52. Posted by joh

    I think that by the end of 2011 or beginning of 2012 the existing inventory will all be gone (including the coming soon One Hawthorne). When that happens, the prices of new and resale property values will hold steadier and begin to rise again.
    What if the jobs don’t come back? There are still lots of people leaving SF.

  53. Posted by nstenant

    I am one of the current tenants, and was just served the letter that reads: “… Please rest assured all leases will be fully honored. Shortly you will be receiving a notice to vacate according to the provisions of your lease agreement. …”
    My lease is running out soon (in a month), and it’s not exactly enough time to make decisions like purchase vs. leave. I do like the unit and would consider buying but not in a hurry like this. Am I just being unlucky by having my lease period coincide with this “New” sales program? Or did I actually deserve a more advance notice?

  54. Posted by NoeValleyJim

    There are still lots of people leaving SF.
    What makes you believe this? The population has been growing for a long time, do you think that is not true anymore? Do you have any evidence to back that belief up? I am genuinely curious and had a discussion with some friends about this yesterday. Our consensus agreement was that the population of San Francisco has been about flat since the economy imploded. Hard to know for sure though.

  55. Posted by curmudgeon

    Noe Valley Jim….purely anecdotal, but to contrast with the DotComBomb it seems to me that the population has been more stable. I do think people have left the City, but in 2001/2 it seemed like we were emptying out and all the youngsters were jumping ship. Now it feels like a slow attrition. I think it’s partly because there’s nowhere to run to, really. And SF is a pretty nice place to be, even on unemployment.
    My lazy indicator is ease of parking in my neighborhood, and it’s been trending easier for the last three years.

  56. Posted by BummedSF

    These are definately not going for the 20-25% down from last year’s asking price. Try half of that!

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