With less than half the tower’s 298 units currently occupied despite having started leasing in early 2014, One Rincon Hill’s northwest tower is reportedly in contract to be sold for $400 million.  And while currently operating as an apartment building, the application to clear the way for the individual units to be sold as condominiums has been approved by the state.

According to the Business Times, only one-fifth of the building’s 132 two-bedroom units were occupied as of February, at which point the tower was only 40 percent leased.  And according to one of their sources, the development team “failed to do enough marketing to get leasing buzz, especially for a building poorly connected by public transit and without a full grocery store nearby.”

A partnership between Rockpoint Group and Maximus Real Estate Partners are said to be the buyers.

As we wrote in 2012 when the ground was broken for the development: “While currently being positioned as rentals, the second tower will be condo mapped and we expect to see a sales, rather than rental, office for the building which should be construction complete by the middle of 2014.”

And while our thinking appears to have been a year ahead of the development team, as we first reported when talk of leasing the tower first came up, re-establishing condominium sales for the tower has always been part of the plan.

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Comments from “Plugged-In” Readers

  1. Posted by curmudgeon

    Wow. What’s the story behind this? I was always surprised how this rental project had so little media presence, but I didn’t realize it was so empty. From the sounds the owners probably made the decision some time ago? But I thought folks said that because of the way they were financed, it was unlikely that any of the current rental towers would go condo. Was this one different in some way, or should we expect more conversions?

    • Posted by Sierrajeff

      It’s pretty unusual for there to be a conversion within 10 years of construction as multifamily rental, due to various lender liability issues. This whole situation seems odd; a market like this, and they could only lease 40%? I have a friend who moved here 3 months ago eager for SoMa / South Beach housing, and I don’t think this even popped up in searches once.

    • Posted by inmycountry

      It’s not really a conversion…conversions are not permitted in SF. It was mapped as condos from the beginning, so the units could be sold at a later date if desired. This is fairly common in SF, as you can never go back and do a conversion. However, it’s a pricey process to condo map the units, so not all developers do it.

      • Posted by SFrentier

        That’s correct, however I’m quite sure (unless you know differently) that most if not all the recent new construction “rental” towers in SF were mapped as condos.

        My take is that a few years ago it penciled as rentals, so they got funding that way. However, once condo prices were back up (like now) most would prefer to sell, profit and go on to the next investment.

        If someone knows differently, please comment with details. Thx.

        • Posted by sfdev

          You are correct. Most if not all new towers are mapped as condos. The only time you wouldn’t is on a long term land lease.

        • Posted by curmudgeon

          My comment was more about the financing of rental towers. I had understood (but it may not be the case for this one) that most of the rental projects in this cycle are being funded by patient money that WANTS to be in rental long term (pension funds, reits, etc?) as opposed to folks who want to quickly get out of a construction loan with condo sales. I might not have this quite right, but I recall articles that stated that even though all of these projects are condo-mapped when they are built, we shouldn’t expect to see conversions (unlike when projects are built intending to be condo, but come on in a tough market so are rented out for a while, but flip the second the market changes). Does this sound familiar?

          • Posted by SFrentier

            Yes you are right, but I have my doubts about how “patient” that money is, when they can sell now and make quick bucks. It’s hard to get a good ROI on new construction in the city, even at current rents. And the maintenance for a high rise will have a lot of overhead. I may be wrong, but I just don’t think it makes sense to keep these as long term rentals when they can sell at a market high. Ultimately we will see what the other buildings do. I’d love to be right, as it helps my rentals.

    • Posted by JayJay

      I think at $6K+ a month, even advertising wouldn’t have helped them be close to full occupancy at this point.

  2. Posted by san FronziScheme

    Are we going to see throngs of buyers lined up around the block like for tower #1? That was the official top of the last cycle.

    If that happens, then I will be officially calling a top.

    • Posted by SFrentier

      Do you expect “lol” to rear his head sometime this year 😉

      • Posted by san FronziScheme

        lol is my bullish alter-ego. I have my “well this is surreal” hat on right now.

        We do not feel gravity anymore for now but soon we’ll be on the other end of that roller coaster hump.

    • Posted by jack

      “I will be officially calling a top”

      I thought you already called it a top when a Bayview property sold for something around $800k? 🙂

      • Posted by san FronziScheme

        Did I? I should keep a trace of my tops.

        • Posted by Sierrajeff

          I heard that a lot this past weekend at Pride.

          • Posted by san FronziScheme

            Nice to see someone got the joke. I had planned to finish the sentence with something about ADHD and wild parties but decided to keep it low key 😉

  3. Posted by SFrentier

    Ha, I was hoping and expecting this. Don’t forget it was just sold, so the old financing probably doesn’t matter. I think it’s a combination of poor lease up and the condo market being so hot. I never thought it mad much sense to build these fancy units as rentals long term. I’m hoping more towers go this route and I think they will. It’s simply a case of follow the money. All great news for me end of day, as I don’t want too many condo towers competing with my rentals :). The less competition, the better (and as this city’s housing policies reinforce as well.)

  4. Posted by Grubber2

    This just indicates that the soon surge supply of for rent product in the immediate vicinity may finally cap out rent increases and other than Lumina no other for sale product is underway. Plus all of this in time to leverage the news of a homicide and television crew stick up a few blocks away near Rincon Park. Horrible news, but I am sure that the “No Shadow on Rincon Park” screamers will pivot quickly and re-title themselves as “Safety in Rincon Park” with an emphasis on cleaning out the 6 permanent homeless there and the plethora of rodents that scurry around as well as pushing for more police on bicycle or motorcycle visiting the park. Okay, well probably not, but I can always dream.

    • Posted by Dave

      When is the next for sale condo building set to hit in the area? Not anytime soon as far as I know. Plus some proposed condos will probably be nixed by public opposition like Gang’s tower and the Hines project.

  5. Posted by Dave

    It could be the market is peaking.

    How are condo sales in the newer towers? There are only so many Google types that want to live in SF. Same for the part-time wealthy residents who purchase many of these units but live here just a few months a year.

    Those markets are tapping out and the prices for these condos are so high the middle-level worker can’t afford them to begin with.

    One Fremont has a chunk of empty office space. I hear BofA and Embarcadero Center have large chunks of space available too. Not to mention the older financial district buildings which are struggling for tenants.

    The boom won’t last forever, none do. Maybe we have peaked in SF for this boom cycle.

    • Posted by sf

      You seem very unhappy in San Fran. Every post is very negative, even when the truth proves you otherwise.

      • Posted by Dave

        No, I’m unhappy not with San Francisco per se but what it is becoming with the banal architecture, not thought out transportation infrastructure (yeah, wait 25 years until another BART tube is built) and on and on.

        This development could have been something really special – look at the plans for the Mission Bay area that brought the Bay into the city with canals and broke the grid street pattern.

        TI could have been something magnificent instead of an enclave for the wealthy under the Pelosi/Lennar regimen.

        Just saying.

        • Posted by san FronziScheme

          With the land costs, construction costs, regulatory constraints, dependable whiners, legal costs and whatnot, ANYTHING new built in SF will be an enclave for wealthy else it is heavily subsidized by other enclaves for the wealthy.

          Under a certain $/sf selling point, some projects will not be built because you can’t get something for nothing, at least not in the private sector.

        • Posted by sf

          So you’re not unhappy, but you are unhappy with everything San Francisco is and has been for the past 30 years. Makes sense.

        • Posted by Anonandon

          Reading Dave’s comment makes me realize I am not the only one old enough to remember the early plans and promises of Mission Bay. Back in the early 90s I remember reading about canals, lagoons, and parkways dedicated to pedestrians and transit, where did all that go?! Also, as Dave mentions, why can’t we be allowed to criticize San Francisco’s current banal architecture and terrible public transit? We could be doing a lot better, and should be expecting a lot more from both the city and builders. I think many who move here think the beautiful views and bay somehow excuse the poor planning and terrible civic services and cleanliness.

          • Posted by anon

            I agree with all of this, though it’s folks like Dave that want to stop the very development that can fund improved services.

    • Posted by anon

      If there were really “large chunks available” all over the place, we’d see rents leveling out or dropping. That isn’t the case. Rents would have to drop by a LOT to put a curb on construction, as rents are sooooo much higher than the lowest level supported by construction prices at the moment.

  6. Posted by Dixon Hill

    $1.3 Million per unit??.And that’s the wholesale price. Retail prices need to be at least 20% to 25% higher for this to pencil.

    • Posted by JayJay

      I’ll buy one at discount when the market crashes 🙂

  7. Posted by sf

    This building meets the street so awkwardly. Your front door is a huge standpipe.

  8. Posted by wonkster

    “And according to one of their sources, the development team “failed to do enough marketing to get leasing buzz, especially for a building poorly connected by public transit and without a full grocery store nearby.””

    I guess it would be a lousy place to actually live – no public transit or grocery – but if you are just buying real estate to get money out of a country and “save” it in the US it really wouldn’t matter.

    • Posted by EBGuy

      Three blocks to a southbound on ramp. These should sell like hotcakes. For everything else, there’s Amazon PrimeFresh. Techies don’t need no stinkin’ grocery store. YMMV.

      • Posted by sf

        Three blocks but a 30 minute commute. Any street within a 5 block radius of here is a complete standstill gridlock between 7am to 10am and 1pm to 7pm.

      • Posted by wonkster

        Why would that not be true for rentals as well?

    • Posted by Dave

      Isn’t that a part of the problem happening in SF. Indeed!

  9. Posted by Mark F.

    Crappy location, that I agree with.

  10. Posted by Frisco

    Less that half occupied? What about the “lack of supply” that’s causing our high rents? I thought more luxury towers were the solution. No?

  11. Posted by DM

    If the units aren’t insanely priced they’ll sell. From the floorpans published during their rental rollout, they seem to be chopped up. Perhaps some walls will be moved or removed or adjacent units combined. With so many units having never been occupied these units will still be brand new. Definitely work a look see.

  12. Posted by patrick

    The building is probably less than half occupied because it was set to go condo. If I were a renter, I wouldn’t want to move in only to pull up stakes when the building converts.

    • Posted by Michael

      I don’t think that’s the reason. Most people didn’t know it was going condo and the rental office sure wasn’t telling people to expect a conversion. I think it’s price fatigue.

  13. Posted by Some Guy

    Maybe the market is peaking, that could explain why the SFR fixer I bought in lower Fruitvale last July has appreciated +33% with almost no work done on it.

  14. Posted by jlasf

    Were the rental prices outrageously high? At a time when people are fighting tooth and nail for any place to
    rent, why was this not filled immediately? I thought every rental was snatched up the minute it was available.

  15. Posted by JayJay

    The builder was too optimistic of high rents. $6K+/Month….pff, you can buy a condo in SF for that monthly charge.

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