Bay Area Real Estate and Development

Hi, Ben.

The questions you pose are extremely difficult for me to answer on a macro level; hence, I will give you my own personal experience with the real estate investments I made in the city and county of San Francisco on a micro level.

I don't know too much about the SoCal real estate market; I keep a studio in BH, off Rodeo Drive, when I'm on film location down there, but I don't own it -- I rent it.

I own two pieces of property in two high-end real estate districts in San Francisco: Twin Peaks and Nob Hill.

Twin Peaks House:
My Twin Peaks house spiked in price in 2001 about 61% growth of the market value in 2001; since then, the growth has been consistent; within the past 6 years, I experienced and average annual growth of 2% - 3% of market value.
In option stock terms, I'm way-way-in-the-money on this property -- the equity in this house far exceeds the loan and strike price I paid for the house. (My mortgage on this house is about $250k.)

Nob Hill House:
I purchased my Nob Hill property in 2001. This is one of the most prime loations in San Francisco. It's located across the street of the Fairmont Hotel and Grace Cathedral and diagonal to the Mark Hopkins. The location is most desirable due to its proximity to any place in the city, historical background, influential residents (present company excluded ;-) ), sites, neighborhood appeal, transportation, and safety.

I experienced a 55% spike in growth of the market value in 2001. Since then, annual Growth has been steady -- averaging at around 4% per year of market value. I am in-the-money with this house -- the equity in this house exceeds the loan and strike price I paid for the house. (I owe about $700k on this two-unit property.) For an additional $700k, I can remodel this property and raise the market value of the property by a factor of 4. This is my next effort -- next to, of course, planning the purchase of my Lamborghini.

So, in my experience, the SF real estate market has been good to me, and it has been consistent. Also, in my experience with SF real estate, it seems that when a spike takes place in the market, like the ones I experienced in 2001, that spike holds steady and becomes the new baseline or market comp for that area/house. The only time I recall of being out-of-money was in the late 80s, where the real estate market fell, and my strike price end up being higher than the market value of the property; but, like any other of my long-term investments, I rode it out and waited 10 years for the market to bounce back -- made a profit and got out to make another purchase.

The negative about SF real estate is that you don't get much for your money by way of square feet. If I purchased outside of SF, I would get more bang for my dollars by way of square feet, with a lot of play money left over to buy another Ferrari or Lamborghini.

I noticed that the real estate activity is extremely competitive and active when people are in the $660k - $1.5 million range. With properties at $1.5 million and above, the activity slows down a bit, and homes don't move as fast in SF.

I guess that's because you have at least 70% of San Francisco residents renting, so, as first time home buyers, most renters might have a strike point at around $600k or so.

SF RESIDENTIAL DEVELOPMENT
SF residential development is at a minimum, which is one of the reasons that real estate in SF is high.

Lots of remodeling to existing properties are taking place but not too much by way of new development. In my Twin Peaks neighborhood, I live on a cliff with the mountains across the street from me.

Tons of space exist for new homes in Twin Peaks, but my neighbors and I are fighting the development companies. We are in a tough battle with developers right now, and many neighborhoods are fighting new development (e.g., Potrero Hill and Bernal Hts.). Hell, I don't want houses across the street from me because I don't like having curtains on my windows; I like looking at the mountains from my windows without exerting energy to open any curtains.

Outside of SF, new residential development is more active; hence, housing can be more affordable when compared to SF. Some areas, like Marin County and the Peninsula, residential detached single family dwellings cost more and have more land and square feet than SF, but those counties are few in numbers and more of an exception.

COMMERCIAL v. RESIDENTIAL SPACES
Since the demise of the Dot-com days in the Bay Area, SF has more commercial space available.

BUSINESS
My background is technology and legal; and, I'm also an entrepreneur. Obviously, high-tech and bio-tech are big here, but I know lots of successful people who made their own paths to success; so, my investment and business practices are more of the Napolean Hill frame of mind.

Good Luck.
/s/ Alfonso Faustino

 

If you go back a year to 2000 you can probably adjust your numbers down 25%.

 

Hi, xs10shl.

That's the reason I made the statement that I will address his questions on a micro level as opposed to a macro level; hence, in my two properties, at the timeframes I mentioned, that was my performance.

 

If you have some flexibility in your living location, then I'd suggest moving North of the GGate bridge. I lived in Silicon Valley for 4 years before I moved to the North Coast and enjoy the slower pace of life in there while being just an hour or so away from downtown.

 

And prices are dropping like a rock in these surrounding areas
http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HomePriceReport.aspx

"Best and worst
The biggest decline was in the Merced, Calif., area. Homes there lost 8.65% of their value over this time last year and 3.76% from the past quarter. Merced's experience underscores Lawler's point: Even with the whiplash correction, Merced prices show growth of nearly 90% in the last five years.

Runners-up for the biggest decline included the California metro areas in and around Santa Barbara, Stockton, Salinas, Modesto, Yuba City, Sacramento, Santa Rosa, Santa Cruz, San Luis Obispo, Oxnard and Vallejo, and Reno, Nev., in the California orbit. Prices dived in Florida communities in and around Punta Gorda, Sarasota, Cape Coral, Palm Bay, Port St. Lucie and West Palm Beach.

"

 

Hey Alfonso... nice write-up.

Frank