April 21, 2010

Another Bank-Owned Watermark Apple Falls Into Our Cart

As we wrote this past November:

Of 83 new listings in San Francisco over the past week, 30 (36%) are either bank owned (16) or seeking a short sale (14). One such listing is for Watermark (501 Beale) #1D.
Purchased for $725,000 in January 2007 but then bought back by the bank this past August, the 831 square foot one-bedroom with parking was listed for $495,000 yesterday.
And according to public records, 501 Beale #1D was refinanced in July of 2007 with a variable rate loan for $780,000. Is it yet another "anomalous" data point to be?

Today the sale of the now vacant 501 Beale #1D closed escrow with a reported contract price of $402,000 (45 percent under its 2007 comp setting price).

Now back to the relative scarcity – but increasing number – of newly bank owned properties in San Francisco proper and whether or not they’ll have any impact on the market as a whole, a market in which prices tend to be set at the margin(s).

One Of Thirty Underwater Properties New To The Market This Week [SocketSite]
A Pair Of Bank-Owned Penthouses Atop The Watermark (501 Beale) [SocketSite]
A Higher Watermark Than Some Expected…Only 23% Under '06 Price [SocketSite]
Actual San Francisco Foreclosures Up 10.9% QOQ (Up 91.1% YOY) [SocketSite]

First Published: April 21, 2010 12:30 PM

Comments from "Plugged In" Readers

My dreams of a city shag-pad inch ever closer! When these hit $300k ... I'll be out shopping!

Posted by: Jimmy (No Longer Bitter) at April 21, 2010 12:52 PM

$483 psft! How's my "ridiculous" $400 psft number coming?

Posted by: tipster at April 21, 2010 1:20 PM

I think $483 psft is an exception for this area.

This is a street level unit on Bryant with a strange looking floorplan, and is tenant-occupied. In addition, the HOAs are pricey at $706/month.

http://www.redfin.com/CA/San-Francisco/501-Beale-St-94105/unit-1D/home/8191061

[Editor's Note: As noted above, the unit was actually vacant at the time of sale.]

Posted by: joh at April 21, 2010 2:14 PM

These things start as exceptions, but people won't always look at the details, and public sentiment (which drives the market more than anything else) is fickle.

Posted by: iceweasel at April 21, 2010 2:17 PM

There was no change in the unit since 01/07. It was 725K and now its 405K. Same HOA's, same street level, same strange looking floor plan...

So, what happened? Aren't there are enough people buying in SF.

Posted by: SFwatcher at April 21, 2010 2:21 PM

It lost its' new unit smell.

Posted by: J at April 21, 2010 2:25 PM

I also think this is an exception. If it wasn't then the next unit that is sold would also be around that price. Sorry that ain't happening at the Watermark.

That is a good price though, good buy by the buyer.

Posted by: SFRE at April 21, 2010 2:26 PM

From the prior thread, rent was $2300 per month.

For a 402K purchase price:

$1675 mortgage @5%
$ 706 HOA
$ 400 property tax
------
$2781

Add insurance, maintenance, etc. and it's hard to justify even this price. Good buy? Not compared to renting.

The former price was simply ridiculous, though they took out $65,000 for the "refinance" and probably never paid a cent to live there (other than making payments with the refinance cash out) so they were smarter than me!

Posted by: tipster at April 21, 2010 2:34 PM

This is a pretty shocking price, but I also think it's an exception....although it doesn't bode well for future Watermark resales.

@ Tipster: you omitted the property tax deduction, which amounts to around $525/month depending on the marginal tax rate used. If you factor that in, the rent-buy on this points to BUYING.

Posted by: Lance at April 21, 2010 2:49 PM

This is a good buy by many measurables. Assuming tipster's numbers--First of all your net annual loss is less than $5772 or $481 month. That means rents need to go up just a little bit and its cash flow positive as a rental or price appreciation will give you a profit on sale.

As a long term proposition, you are locked in with these relatively fixed costs so it sure beats renting over anything but the short term.

Posted by: SuckaFreeCity at April 21, 2010 2:52 PM

"you omitted the property tax deduction, which amounts to around $525/month depending on the marginal tax rate used."

Is your Marginal tax rate 140% or something?

($402k * .0112) / 12 = $375.2/month.

Looks like a $131/month tax savings to me.

Posted by: J at April 21, 2010 3:02 PM

"This is a good buy by many measurables. Assuming tipster's numbers--First of all your net annual loss is less than $5772 or $481 month. That means rents need to go up just a little bit and its cash flow positive as a rental or price appreciation will give you a profit on sale."

Are you serious when you suggest that buying a cashflow-negative rental property is a good idea? I mean, at least you're suggesting this with respect to a non-rent-controlled property, but still.

This is why seeing housing as an investment is so problematic for people who aren't professional investors -- most people don't know how to invest.

Posted by: JimBobJones at April 21, 2010 3:08 PM

Yes. I completely flubbed the numbers by not taking the tax deductions.

Using 28%

$1206 Mortgage
$ 706 HOA
$ 288 Property Tax
_____

About $2200. So when you add in some maintenance and insurance, the rent vs buy is a wash.

Probably the shape of things to come. Sorry for the omission. Doing too many things at once today.

Posted by: tipster at April 21, 2010 3:14 PM

Yo JimmyBob--It's all relative. Obviously SF sucks to invest. But if you're gonna do it. This is a decent way to go, if you live in it for a few years and then rent it out.

Posted by: SuckaFreeCity at April 21, 2010 3:15 PM

Tipster, on post below you said that this post (I think) showed 30% of listings were foreclosures this week.
Where did you get that info from?

Posted by: REpornaddict at April 21, 2010 3:34 PM

Sigh. That was incorrect also. I suck today.

Posted by: tipster at April 21, 2010 3:49 PM

It seems as if a lot of these are newly constructed buildings, many in the SOMA area. This will put some downward pressure on prices but by how much who knows.

I'm not sure however, if it affects prices less in non-SOMA neighborhoods, say Pac Heights or the Marina. My sense is that (for now) condos in these areas are more insulated from foreclosure-related price declines than the SOMA buildings (and general area) if only because the units tend to be more dispersed. I also would guess that there are people out there who would simply not be interested in living in the SOMA area for obvious reasons, and would prefer other more established neighborhoods instead. Of course at a certain point, price will rule.

Any thoughts?

Posted by: square feet at April 21, 2010 3:50 PM

@J: I have no idea what you’re calculating, but that is wrong. So, here are my assumptions on the mortgage deduction: Purchase price =$402K, Loan value=$322K (assumes 20% down), $16K annual mortgage interest, and 40% marginal tax rate (31% federal +9% state). If you use those assumptions, you arrive at $536 per month.

Tipster, thanks for correcting your previous calculations. I agree with you, it is close to breakeven.

[Editor's Note: With respect to calculating tax benefits...An All Too Common Misconception.]

Posted by: Lance at April 21, 2010 4:26 PM

You said, "you omitted the property tax deduction, which amounts to around $525/month depending on the marginal tax rate used."

That is what I calculated for you.

Posted by: J at April 21, 2010 4:33 PM

square feet is correct the soma is not a nice neighborhood when compared to places like pac hts and marina. it has gone from "marginal " to "gentrifying" but these areas will lose value before established areas

Posted by: meep at April 21, 2010 4:33 PM

regardless, you could say the developer timed the market perfectly. Good for him!

Posted by: bbkk at April 21, 2010 4:59 PM

Anyone who has ever seen that unit would probably say it is one of less desirable units in the area (it's at street level for a great view of the cars getting on the Bryant onramp)....so the pricing seems accurate to me. Certainly it is not comparable to PSF pricing for a 15th floor 2/2 in a nice building with unobstructed water views.

Posted by: anon at April 21, 2010 5:24 PM

I agree. This is such an unusual unit that it is hard to see how it will affect prices for the rest of Watermark, or the rest of South Beach for that matter.

Posted by: WM Fan at April 21, 2010 7:56 PM

@J: Are you serious?! Per the editor's reference above, I did oversimplify my own calculation, but it's MUCH more accurate than yours. In fact, I just plugged my assumptions into Turbo Tax to make sure that I account for our overly complex tax code. Using my own household income and assuming no other mortgage interest deductions, this reduced my personal tax liability by $522.67 per month...within $3 of what I stated before!

BTW, property taxes are also deductible for tax purposes which wasn't accounted for in the original example, but I realize this was a high level swag.

Posted by: Lance at April 21, 2010 7:56 PM

@J: OK, I just reread you post. Sorry, I did say property tax but I think you know that I meant mortgage deduction. Either way, I'll shut up now :-)

Posted by: Lance at April 21, 2010 7:59 PM

Editor's Note: As noted above, the unit was actually vacant at the time of sale.
Whoops. I skimmed this post too quickly. Thanks for the correction, Mr Editor.

Posted by: joh at April 21, 2010 8:59 PM

@SFwatcher
There was no change in the unit since 01/07. It was 725K and now its 405K. Same HOA's, same street level, same strange looking floor plan...

We were still in a bubble in January 07. Prices were inflated across the board; even more so at the bottom end. Even Bayview had super-inflated prices back then.

There's no denying that the vast majority of units in the Watermark and other nearby buildings will command a significantly higher price than 1D did. Which, as I've said, makes this particular unit an exception.

Regardless, this does not bode well for Watermark residents.

Last year, I saw the listing for this unit when list price was $470K. It was tenant occupied at the time. I walked by and saw the unit from the outside, and realized that it wasn't for me, especially at that price. When the price came down to $446K, it sparked my interest again, but I didn't think that unit justified the $706 HOA dues. I figured it might be worth considering for around $420K. I really didn't believe that it would sell below that! Kind of shocked, and kind of disappointed that I never bothered to go take a look inside.

Posted by: joh at April 21, 2010 9:16 PM

Post a comment


(required - will be published)


(required - will not be published, sold, or shared)


(optional - your "Posted by" name will link to this URL)

Remember Me?

(you may use HTML tags for style)


Continue Perusing SocketSite:

« Actual San Francisco Foreclosures Up 10.9% QOQ (Up 91.1% YOY) | HOME | New Designs For Dwellings And Retail At Market And Sanchez »