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Downtown San Francisco Luxury Apartment Tower Loses Half Its Value
- stevenae 3y agoAn intuition I am open to being incorrect: I found NEMA ostentatious and overpriced even at the peak of Uber/Twitter hype (the offices of which form a NEMA sandwich). Second only to the condo building that tilted because its piles were driven too shallow, it does not surprise me that this building would "lose value" in a correction.
- johnloeber 3y agoCorrect. NEMA was always kind of ill-conceived.
- tempsy 3y agoCurrent vacancy rate is still less than 10%, so unsure what makes it ill-conceived. There is/was a lack of amenity-rich rentals targeted to young professional types in SF like you’d see in NYC and it fills a certain niche. Main issue is rental market in SF is still soft so they can’t charge what they did pre-pandemic, and the location doesn’t help.
- anm89 3y ago"so unsure what makes it ill-conceived" The headline of the article is that it has lost 50% of it's value. During that same multi year period we have had well over 10% inflation. So Maybe that part. Yeah I'm gonna go with that part. Or maybe the investors just hate money and were going for -60% ROI. Who knows.
- tempsy 3y agoThis is a really uncalled for response. The original comment pointed to the ostentatiousness of a luxury rental building, as if there is no place for it in SF. It lost value because of a global pandemic years after it launched that has caused rents to fall, but has still managed to keep vacancy rates below 10%. Obviously it could not have planned for something completely outside of its control.
- nradov 3y agoReal estate values aren't included in inflation calculations.
- neural_thing 3y agoThis is wrong. Housing accounts for about a third of CPI. There's some funkiness about how the Owners Equivalent of Rent is calculated but real estate prices definitely show up in inflation. https://www.brookings.edu/articles/how-does-the-consumer-price-index-account-for-the-cost-of-housing/ https://www.brookings.edu/articles/how-does-the-consumer-pri...
- nradov 3y agoNope. Owner's equivalent rent is not the same as real estate price.
- uoaei 3y agoLost valuation, which is a distinct concept from value.
- frumper 3y agoSure, but at 92% occupancy and a delinquent loan on the building with negative cash flows, the lower valuation removes the ability to sell and come out ahead. They're in a hole, digging deeper and the escape plan just collapsed in on them.
- kelseyfrog 3y agoPlease. If we accept the validity of use-value separate from exchange-value there is an entire dialectical chain of consequences we have to contend with. It's much easier to conclude that its value is equivalent to its price.
- anm89 3y agoThere is just nothing about this statement that is profound
- uoaei 3y agoIt's not meant to be, it's meant to challenge assumptions.
- iancmceachern 3y agoCheck out this building in SOMA, it was finished, sat empty waiting for permits for 2 years because the City sucks, and during that time the condo market crashed and so now the builder had to hand it back to the lender. Full brand new condo building one block from Oracle Park with like 24 luxury condos in it for 16 mil now: https://sfstandard.com/2023/08/16/brand-new-san-francisco-condo-complex-handed-back-to-lender/ https://sfstandard.com/2023/08/16/brand-new-san-francisco-co...
- adamredwoods 3y agoBy now I would think most builders can expect 1-2 years for obtaining permits. Not ideal, but it's similar in other large metros.
- JumpCrisscross 3y ago> By now I would think most builders can expect 1-2 years for obtaining permits It takes 6 to 12 months in New York [1]. In the meantime, 90-day temporary COIs are issued. Permitting hell is a California specialty. [1] https://propertyclub.nyc/article/certificate-of-occupancy-nyc https://propertyclub.nyc/article/certificate-of-occupancy-ny...
- jen20 3y agoThat is certainly not the case in Austin. There's no reason SF can't replicate that if they even try a little bit.
- lazide 3y agoSF has been actively tarpitting permits for a very long time. The last thing they want is speedy or effective.
- iancmceachern 3y ago"San Francisco's process for issuing building permits is notorious for being one of the most cumbersome in the country. The city takes an average of ten months to issue a permit, compared to six months in Los Angeles and New York City." https://starboardcre.com/editorials/governor-newsom-wants-to-know-why-it-takes-so-long-to-get-a-building-permit-in-san-francisco/#:~:text=San%20Francisco's%20process%20for%20issuing,Angeles%20and%20New%20York%20City https://starboardcre.com/editorials/governor-newsom-wants-to....
- 1-6 3y agoWhen property like this goes underwater, it starts the clock for how long people can wait things out while staying solvent. The exponential rise in property prices have helped people stay calm but I think there’s a lot more pain ahead.
- anm89 3y agogood to see a single person in this thread understanding the problem in a sea of the willfully ignorant
- lacker 3y agoAccording to Zillow, rent in SF is about flat over the past year and a half, so it's not like all SF real estate across the board is getting twice as cheap. I kinda like the NEMA building itself, but the location near Civic Center is right in the middle of the fentanylpocalypse. Of all the places to lose value, this one doesn't surprise me much.
- potatopatch 3y agoInterest rates have doubled in the last 2 years, so rents being flat roughly corresponds to asking price of about half..
- bequanna 3y agoI don’t follow. There isn’t a perfect relationship between cap rates and interest rates, especially during this cycle cap rates haven’t fallen as quickly as expected.
- potatopatch 3y ago> NEMA’s debt-service coverage ratio, which measures the ability of a property’s cash flow to pay its debt, has been below 1 since 2020, a troubling sign for the ability of the developer to control the building. The cap calculation on the property has also been fixed by cutting the price in half, but more importantly a new commercial owner would at least be able to service a loan based on the new value.. While the cap rate could be such that expectations are insufficient for debt service, I think that means there are no realistic buyers.
- tempsy 3y agoIt's not that rents are declining, it's that interest rates keep going up.
- olliej 3y agoWhy do you need new buildings? This article is literally about the value of a building declining. The problem is that there are large numbers of dwellings that are empty, but the property owners don't want to rent them out in the vague hope that in the future they'll be able to charge much more. So you get high rents and homelessness (that's your fentanylpocalypse that you've decided is the city's fault and not the predictable consequence of cost driven homelessness) while also having large numbers of unoccupied apartments. All because a bunch of investors are hoping that by restricting the supply they can push rent prices up.
- Ancalagon 3y agoWell that sucks. Anyways…
- jarjoura 3y agoSo, developer tried to jump into the insanely hot condo market of 2018/2019 where foreign investors would buy up units and rent them out to people in tech. Pandemic happened, and interest rates shot up. Looks like timing is everything, and it wasn't really SF's fault.
- olliej 3y agoNah, it's really important that we blame the SF governance (which has plenty of issues) for the poor planning and failure to accept basic capitalism of a for-profit condo company. Seriously this is basic capitalism: if your customers/tenants all work for one industry, and that industry craters and lays them all off, you aren't going to have customers/tenants any more - and the local government can't control that. [Blaming SF's governance for literally everything as if it controls many of the companies based in SF collapsing because they were poorly run and/or poorly conceived failing and leaving is the only thing that passes muster in HN comments :D]
- Racing0461 3y agoNow we see the real reason for forced RTO to city centers. The people that own the tech companies also own real estate and needs the farce of white collar workers being around their property to keep its value inflated.