March 16, 2012
One Rincon Hill Tower Two Site Sold, Rentals Likely To Rise
As we first reported in January, the One Rincon Hill second tower site was in play, but Miami based Crescent Heights wasn’t the buyer. Instead, Principal Global Investors picked it up for $29.75 million out of foreclosure (which plugged-in people knew to expect).
According to the Business Times, "the development team is aiming to start construction by this summer, and...the units will likely be rented out rather than sold as condos."
Or as a reader suspected a few months ago, "this tower will be built as apartments, with a condo map put on it so that it can be converted at some point in the future."
∙ One Rincon Hill Tower Two Site In Play [SocketSite]
∙ One Rincon Hill Phase II Partnership Interests Headed For Foreclosure [SocketSite]
∙ New tower to rise on San Francisco's Rincon Hill [San Francisco Business Times]
First Published: March 16, 2012 8:00 AM
Comments from "Plugged In" Readers
tricky, if it is the same association.
over 50% renters would make financing difficult if the same association as 425 1st.
Posted by: Paul Hwang at March 16, 2012 9:36 AM
Dont see why it would be. The building I live in has a twin on the same parcel by the same developer but with a diff postal address. It has its own HOA.
Posted by: Joe at March 16, 2012 10:00 AM
Weren't certain amenities promised to 1RH owners to be implemented when the second tower was built? Are those amenities now lost?
Posted by: The Milkshake of Despair at March 16, 2012 10:17 AM
will it still be built to the same design?
Posted by: James at March 16, 2012 10:26 AM
are they required to follow the same design? Even though i don't like it, i think it would be good to have matching towers
Posted by: spencer at March 16, 2012 10:43 AM
I can not wait to rent right next to the off ramp, highway and on ramp. such a lovely place to walk around at any hour.
Posted by: blah at March 16, 2012 11:34 AM
Funny how so many people were saying this would never get built.
Any guess when we will see the next housing bubble? The economy is pretty stagnant but I'm sure a lot of people in my demographic are hitting new highs in investable assets on nearly a daily basis.
Posted by: anon at March 16, 2012 12:14 PM
I would sue if I were a current owner of ORH. I bet many of these owners bought their unit having been promised and fully believing that the second tower would get built. Not only has the housing market tanked since then, but the fact that the second tower is being built as a rental building, I believe, significantly lowers the value of Tower 1 even more so beyond the hit that the economy has had. This suuuuuuucks for T1.
Posted by: Cheated at March 16, 2012 12:38 PM
I'm sure the developer put sufficient protections into the contracts so that there is no legitimate basis for lawsuits based on a failure to build tower 2 as initially planned.
Posted by: shza at March 16, 2012 12:52 PM
@ shza: I feel few contracts are bulletproof and airtight, and wording is ALWAYS subject to interpretation. I think it would be worth the time and effort for the owners of T1 to take a closer . . . much closer look at their contracts.
Posted by: Cheated at March 16, 2012 1:28 PM
The article stated that now that the status of Tower 2 is put to rest, they can now market the remaining developer owned units in Tower 1 (apparently about 20, on high floors). That seems like so much malarkey to me, as I don't understand why they would ever stop trying to sell their product. But what do I know. Anyone care to comment (like Paul Hwang)?
Posted by: curmudgeon at March 16, 2012 1:32 PM
If I had the energy and time, I'd dig up tipster's comment from previous threads that T-II will never be built. Alas, I have more important things to do.
Posted by: Retrospectoscope at March 16, 2012 2:36 PM
This seems like an odd one to pick to try and rub tipster's face in. *Something* is being built here but it's clearly not the originally-planned T-II. It will be a more cheaply-built, lower quality, rental building.
Posted by: shza at March 16, 2012 2:39 PM
If anything current residents of 1RD should be grateful, at least those with east and north facing views- since they don't have a huge tower blocking their views which should be been there in the first place since they moved in.
Posted by: @Cheated at March 16, 2012 2:44 PM
I have to say it surprised me that rent (even the high rents we have now) justify construction of a tower. I thought conventional wisdom was that it didn't. Is that because a) the assumption is that there is upside in eventual condo conversion or (b) land value is low enough to counteract the high construction cost or (c) both of the above?
Posted by: curmudgeon at March 16, 2012 2:45 PM
I am not sure if they can really save on the structural work. Finishes would be where they could save, but these will be expensive rentals, therefore with a very decent level of comfort. I assume the developers will want to keep their options open and not do things so cheaply. After all if they eventually want to go condo they won't want to tear out the interiors, simply a basic update.
Also, I do not see where a rental tower would undercut the ORH-1 owner's values. Renters at 3500-9000 are likely to want the same level of service as ORH-1 homeowners. On the contrary. Instead of lame duck underwater failed flippers the place will be filled with people who actually buy into the lifestyle of this building with real hard money.
Posted by: lol at March 16, 2012 3:00 PM
curmudgeon, I think the buyers of this parcel are counting on ever-rising rents. From just a few weeks back, Rents Keep Rising, Even as Housing Prices Fall:
Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation, released by the Labor Department.
With few rental buildings erected over the last few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade, according to the research firm Reis Inc.
Rent increases are greatest in places like San Francisco, Austin, Tex., and Boston, where technology companies in particular are hiring…The limited supply is pushing up prices in some markets. In San Francisco, rents jumped close to 5 percent last year, according to Reis…Liz Brent and Matt Mochizuki moved into a studio apartment a year ago in the Mission District in San Francisco for $1,395 a month. Now they want more space.
Ms. Brent, 26, makes costumes and is working as a barista at a cafe where customers leave big tips. Mr. Mochizuki, 27, has a steady job making custom metal work for a design studio. They are budgeting $1,800 a month in rent.
But at an open house for an apartment billed as a one-bedroom, they found a studio with an awkward layout and bad light. More than 40 people were in line, many ready to hand over a check.
“That’s what the market is like now,” Ms. Brent said of their fruitless search. “That’s how many people showed up for this tiny apartment with no windows.”
Emphasis mine. Sure, there's eventual upside if they are condo-mapped rentals like a previous commenter surmised. But I'd guess that the company thinks rents are going to not only stay high like they are now but rise substantially as more people get used to the feeling of having the boot of a landlord on their neck instead of owning. And even with the recovery, I think construction costs are still lower than they were when the first tower was completed.
Posted by: Brahma (incensed renter) at March 16, 2012 3:05 PM
having the boot of a landlord on their neck instead of owning
As opposed to the boot of a banker.
Pick your poison.
Posted by: lol at March 16, 2012 3:28 PM
and the boot of the HOA. and the boot of the tax assessor. and the boot of the water utility and trash collector. and the boot of the contractor for any repairs.
I own my place, and there is a lot to be said for the renter's peace of mind in being able to call up the landlord and say "your problem, not mine."
Posted by: anon at March 16, 2012 3:54 PM
Is your question "why did they stop selling?"?
The buildings / projects are made up of a bunch of investors / equity partners and when something happens to one of them, many times if it results in legal action, the disposition of the assets of the party must be approved by a court, so those assets are usually in limbo for a while.
Any BK attorneys out there?
Posted by: Paul Hwang at March 16, 2012 10:52 PM
anon, if we've been over this once, we've been over it ten times on socketsite. Someone who is renting is also covering the landlord's HOA dues, and their property taxes, and the costs of any repairs, albeit indirectly.
Unless he or she is running some kind of charity, the landlord is rolling all of those costs into the collected rent and the tenant is paying it. Any renter who understands the concept of overhead understands this, even if they've never cracked a textbook on managerial accounting. A landlord certainly does; otherwise they'd be bankrupt in short order.
Not only is the renter paying all of the above, they get the additional financial burden of covering the landlord's profit.
Posted by: Brahma (incensed renter) at March 17, 2012 8:08 AM
Brahma, who cares if you're covering the landlord's profit? That's assuming the landlord bought more than ten or twelve years ago and is thus making any profit to begin with.
Anyone who has rented in SF rather than buying in the last ten years has come out way ahead financially even if one accepts your assumption that a landlord can pass through all those costs (in rent controlled SF, good luck with that!). And they get the priceless benefit of being able to handle problems with a single call to the landlord and a demand to "fix it."
Your assumption that a tenant indirectly pays all those costs is false.
Posted by: anon at March 17, 2012 9:18 AM
We all know that renters, indirectly, pay the costs borne by the owner: taxes, insurance, maintenance, mortgage; in some cases not All the costs, but in many and most cases a LOT of the costs.
BTW: structural work is structural work, regardless of whether a building is a rental initially, or condos initially, or even condos in the future. Structural work is the required steel/concrete framework and foundations to support any high rise building. Yes, some "finishes" may be of lower cost and quality for rentals, but in all likelihood since these units may become condos for sale in the future, the finishes will probably be high quality to begin with.
Posted by: futurist at March 17, 2012 3:50 PM
What is the percentage of renters in T1, currently? T1 should hope there are no below market rate units.
Posted by: Artvandalay at March 17, 2012 4:04 PM
What is the percentage of renters in T1, currently? T1 should hope there are no below market rate units in the new building.
Posted by: Artvandalay at March 17, 2012 4:06 PM
"T1 should hope there are no below market rate units." -- Won't happen; city won't let it.
Posted by: Cheated at March 18, 2012 11:05 AM
T1 is going to have it's own problems with noise from a construction site next door running 7am-8pm 7 days per week for a very long time. That's going to give a lot of buyers and renters in T1 pause.
The lack of privacy and view impact of T2 on T1 won't be insignificant either.
The owners in T1 are largely underwater already, so the issue is moot: it's more an issue of how much the banks will lose.
Posted by: tipster at March 18, 2012 1:57 PM
I think the eventual construction of T2, including impact of views, was already factored into the purchase decisions of T1 owners.
Posted by: Dan at March 18, 2012 3:22 PM
Yes, T1 buyers knew where T2 would be built. In fact, it's the nearest point in your photo, at the corner of Harrison and the Fremont Street off-ramp. It's offset from T1 diagonally, separated by the space that contains the pool, lawn, BBQ, etc. AFAIK, the design hasn't changed: 50 stories. We will share the pool and parking, and the hope is that T2 will have a larger fitness center that T1 residents will be able to use, although that was never promised in the T1 contracts.
Posted by: skyguy at March 19, 2012 7:37 AM
Tower 2 will be built exactly as designed and permitted several years ago. It will have a condo map on it and when the economics change to be able to sell condos and make a profit the developer will convert the rentals to condos and sell them, just as has been done in many other buildings in SF and elsewhere before.
Why ever would an owner in Tower 1 be stupid enough to sue the developer and throw the whole project into unfavorable status? This would only make it less likely for a Tower 1 owner to be able to sell if need be.
Posted by: Jim at March 19, 2012 11:10 AM
They should sue. They purchased with the idea, promoted by the developer (now fee developer), that T2 would be built and marketed as condos. There is obviously a lowered value of T1 units, with T2 being built as rentals. Looks like a further devaluation for T1 units. This time not due to the market but directly from the developer.
Posted by: Donny at March 19, 2012 10:16 PM
This is just silly. The renters will certainly be very decent earners, and the HOA will be sure that all dues will be paid, as opposed to foreclosed owners who let everyone hold their bags.
If we go all the way in the lawyer insanity, owners of ORH1 should sue the developer for having allowed a very high rate of wannabe flippers into the building. This led to "accidental landlords" and very poor resale value in addition to the strain on the HOA from distressed and underwater owners.
At least we know the renters can afford their units. It wasn't always the case for the original ORH1 buyers...
Posted by: lol at March 20, 2012 8:35 AM
lol said, "If we go all the way in the lawyer insanity"
They should already have their homeowners association lawyers filing. If not, the HOA is basically an arm of Urban West. Poor ORH owners.
Posted by: Donny at March 20, 2012 11:06 PM
"We" being a generic impersonal qualifier in this case.
People get very touchy these days.
What is the proof that rentals would lower ORH1 resale value in a luxury condo building?
Irresponsible wannabe flipper activity probably does more harm to resale value than anything else. They created a fictitious price through "fake" demand, made everyone pay more than they should have and then helped pulling the rug under the feet from non-flippers. They should be sued, not the developer who transforms risk and capital into something productive and tangible.
Posted by: lol at March 21, 2012 8:27 AM
A big lawsuit against involving the HOA and the developer will definitely lower property values in T1 far more than a bunch of wealthy renters living in T2 will.
Posted by: R at March 21, 2012 9:12 AM
Posted by: SocketSite at March 27, 2012 2:53 PM