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San Jose and Oakland challenge SF in private equity real estate market

California’s largest cities for real estate investment, San Francisco and Los Angeles, are now being challenged by San Jose and Oakland. California holds almost 20% of the private equity real estate (PERE) in the country and 12% of global PERE assets under management, according to a study by accounting and advisory firm EisnerAmper and Preqin. PERE properties include office buildings (high-rise, urban, suburban and garden offices); industrial properties (warehouse, research and development, flexible office/industrial space); retail properties, shopping centers (neighborhood, community, and power centers); and multifamily apartments (garden and high-rise). Less common but still an option are senior or student housing, hotels, self-storage, medical offices, single-family housing to own or rent, undeveloped land, and manufacturing space (via Investopedia). 

So how do the Bay Area cities compare?

San Francisco’s strength is in its office market, with $3.2 billion PERE deals in 2018 (a $1 billion increase over 2017) and another $1 billion already invested this year as the Bay Area’s largest tech companies continue to expand. The overall PERE total for last year was $4 billion,down from $4.8 billion in 2017; according to an article in the San Francisco Business times, “the drop-off in the quantity of large mixed-use transactions compared with recent years is at the heart of the decrease.” San Francisco is also running out of space, which limits growth.

While San Francisco is still the largest market for office transactions in the Bay Area, San Jose is leading in growth. Their office transactions in 2017 and 2018 both reached $1 billion, with a record in 2018 at $1.2 billion. In Q1 of 2019 alone, these transactions reached $500 million, putting San Jose on track to quadruple its PERE deals this year. The overall PERE total for 2018 was another record of $2.7 billion, almost 60% more than 2017 and a sharp contrast to San Francisco. 

Oakland may be emerging as a competitor, with more reasonable housing options for tenants; the tech company Square announced at the end of last year their intent to move 2,000 employees into an Oakland office. Even as a smaller city, it is on track to reach a total of $1 billion in PERE deals this year, with $560 million in Q1 2019 already; $493 million of that was just two office space deals by Starwood Capital Group. The city also has more Opportunity Zones than either of the other two cities.

With San Francisco as the “benchmark,” San Jose as the “growth leader,” and Oakland as the “up and comer” (according to the SF Business Times), all three cities are going strong.

Source: SF Business Times

 

Big downtown San Jose housing towers, retail, restaurant complex pushes ahead

A big development that will bring downtown San Jose two striking residential towers containing more than 600 dwellings, along with spaces for a restaurant, coffee shop and retailers, is slated to push ahead with construction this month, according to a realty executive.

Miro is a housing high-rise that would dramatically reshape San Jose’s skyline and become its tallest towers.

The project has gotten through a three-month delay after workers hit an aquifer and water poured into the construction site, creating a large pond that had to be controlled and pumped out.

Now that project developer Bayview Development Group has vanquished the water woes, contractors are expected to begin pouring the surface concrete slab within the next few weeks, a necessary prelude to construction of the vertical components.

 

The development would include two towers that each will rise 28 stories and will also offer 18,000 square feet of commercial space, including enough room for a sit-down restaurant, a coffee shop and other retailers.

 

The project fronts on East Santa Clara Street as well as the corners of North Fourth and North Fifth streets. It’s right across the street from San Jose City Hall.

 

 

Read more on East Bay Times

 

 

Oakland requires landlords to retrofit ‘soft-story’ buildings

Landlords have six years to retrofit the buildings, which are prone to substantial earthquake damage.

To prevent hundreds of multi-story, wood-frame apartment buildings from collapsing as they did in the 1989 Loma Prieta earthquake, Oakland is requiring seismic upgrades of all those at risk in the next big shaker.

There are 1,479 such “soft-story” apartment buildings in the city constructed before 1991 — when the building code changed — that stand two to seven stories tall and contain five or more apartments, according to a 2008 analysis by the city and the Association of Bay Area Governments.Those buildings are supported by slim columns with either garages or storefronts underneath, and contain a total of 24,273 apartments.

With fears of the “big one” occurring any day now along the Hayward fault — which runs along northeast Oakland and south along Interstate 580 — the City Council unanimously passed an ordinance Dec. 14 making the seismic retrofitting of soft-story buildings with more than five units mandatory, giving landlords four to six years to get their buildings up to code.

“A major earthquake along the Hayward fault is not a matter of if, it is a matter of when,” Mayor Libby Schaaf said in a statement released a week before the meeting. “As a city, we have a responsibility to put measures in place that will prevent injury and loss of life, and reduce displacement and recovery time in the aftermath of a major quake. This ordinance does all of those while also ensuring that we’re not placing an undue financial burden on property owners and tenants in our community.”

San Francisco passed a similar ordinance that went into effect in 2017; Berkeley and Fremont also require soft-story buildings to be seismically retrofitted. The Hayward council is scheduled to consider a similar measure in February.

In 2009, Oakland required soft-story building owners to gauge the potential earthquake damage that could occur. In the city’s 2015-2023 General Plan, officials called for the creation of a seismic safety retrofit program that would encourage retrofits through financial and procedural incentives.

Councilmember Dan Kalb — who introduced the ordinance — said city staff had been researching the risks of soft-story buildings and working toward the legislation for about four years. Though some California cities have required the buildings be retrofitted, others have not yet addressed the issue.

Seismic retrofits fall under the Oakland rent board’s definition of capital improvements, and thus up to 70 percent of the cost of may be passed on to the tenants. This ordinance requires that pass-through costs to tenants be dispersed over 25 years to prevent substantial rent hikes.

 

Read more on East Bay Times

 

 

Oakland may require landlords to retrofit seismically unsafe apartments

Oakland may soon require hundreds of old apartments to be seismically retrofitted in an effort to prevent a mass collapse of buildings in the next big earthquake.

The retrofit rules would apply to soft-story residential buildings: multiunit, wood-frame structures with weak first stories built before 1991. An apartment with garage parking in the ground floor or street-level retail could fall into the targeted category.

Such buildings are prone to collapse during earthquakes, when the combined weight of shaken upper levels becomes too much for the vulnerable first story, as Loma Prieta proved in 1989 and Northridge in 1994.

“You look at photos of (San Francisco’s) Marina District after ’89 — quite a few buildings looked like three stories when they used to be four,” said Thor Matteson, a structural engineer of the Bay Area firm Quake Bracing.

Oakland is believed to have more than 24,000 housing units in 1,400 to 2,800 soft-story buildings, defined as those with at least five units and two to seven stories, according to city estimates. The first step of the ordinance proposed by City Councilman Dan Kalb and Mayor Libby Schaaf involves finding out which buildings must be retrofitted and which are exempt, such as those that have already completed the work.

Building types would be divided into three tiers, and each category would be on a different timetable. Owners would have four to six years to complete the retrofit work.

Read more on the San Francisco Chronicle

US homebuilding rose in October on a rebound in multifamily housing projects

U.S. homebuilding rose in October amid a rebound in multifamily housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 percent to a seasonally adjusted annual rate of 1.228 million units last month.

Data for September was revised to show starts dropping to a rate of 1.210 million units instead of the previously reported pace of 1.201 million units.

Building permits slipped 0.6 percent to a rate of 1.263 million units in October. Economists polled by Reuters had forecast housing starts rising to a pace of 1.225 million units last month.

The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices. This is making home buying unaffordable for many workers as wage growth has lagged.

The 30-year fixed mortgage rate is hovering at a seven-year high of 4.94 percent, according to data from mortgage finance agency Freddie Mac. Wages rose 3.1 percent in October from a year ago, trailing house price inflation of about 5.5 percent.

Residential investment contracted in the first nine months of the year and housing is likely to remain a drag on economic growth in the fourth quarter. Economists expect housing activity to remain weak through the first half of 2019.

U.S. financial markets were little moved by Tuesday’s housing starts data.

Single-family homebuilding stalls

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 1.8 percent to a rate of 865,000 units in October after declining in September.

Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.

A survey on Monday showed confidence among single-family homebuilders dropped to a more than two-year low in November, with builders reporting that “customers are taking a pause due to concerns over rising interest rates and home prices.”

Single-family starts in the South, which accounts for the bulk of homebuilding, fell 4.0 percent last month. Single-family homebuilding jumped 14.8 percent in the Northeast and fell 2.0 percent in the West. Groundbreaking activity on single-family homes dropped 1.6 percent in the Midwest.

Permits to build single-family homes fell 0.6 percent in October to a pace of 849,000 units. These permits remain below the level of single-family starts, suggesting limited scope for a strong pickup in homebuilding.

Starts for the volatile multifamily housing segment surged 10.3 percent to a rate of 363,000 units in October. Permits for the construction of multifamily homes fell 0.5 percent to a pace of 414,000 units.

 

Read more on CNBC

 

 

There’s a new plan to stop Millennium Tower sinking — and settle lawsuits

All sides in the Millennium Tower debacle appear to be nearing an agreement on a $100 million-plus fix to stop the 58-story high-rise from sinking further — but at least part of the building’s tilt will probably remain.

“We’re very encouraged by the recent progress that has been made,” said P.J. Johnston, spokesman for Millennium Partners, the luxury condominium’s developer. “We look forward to working with the homeowners and the city to get this all completed as soon as possible.”

Doug Elmets, spokesman for the homeowners association, cautioned that nothing has been submitted to the city yet for review, but that residents are “encouraged by the ongoing progress.”

The latest plan calls for drilling piles into bedrock from the sidewalk on the building’s southwest corner. The proposal would be less extensive and intrusive than the plan floated in April, which called for drilling as many as 300 micro-piles to bedrock through the building’s concrete foundation.

The idea was to stabilize one side of the 58-story structure, then let the other side continue to sink until the building straightened itself. That plan, however, probably would have cost upward of $350 million — as much as it cost to build the tower in the first place.

The new plan by Ronald Hamburger, the structural engineer for the developer, is expected to be considerably less expensive and faster, and without as significant a disruption to the residents.

“Hopefully, it will take out some of the tilt and stop the building from moving entirely,” said one source familiar with the plan, but who wasn’t authorized to speak for the record.

The tower has sunk 18 inches and tilted 14 inches to the west since it opened in April 2009.

The building sits on a 10-foot-thick mat foundation, held in place by 950 reinforced concrete piles sunk 60 to 90 feet deep into clay and mud. They do not, however, reach bedrock.

The repair job is expected to take several months to complete. The timeline for getting started, however, will probably hinge on how fast the parties can get approval of an environmental impact report and the necessary building permits.

Read more on The San Francisco Chronicle

Bay Area blazes hit multifamily buildings

A late-night fire destroyed an under-development East Bay multifamily complex Monday night, hours after the San Francisco Fire Department got a fire in a downtown high-rise under control.

A West Oakland fire, which was first reported around 2 a.m. at West Grand Avenue and Filbert Street, burned six buildings under construction on the site — two that were near completion and four in early stages of construction, the San Francisco Chronicle reports. The project developer is City Ventures, which was planning 126 condos on the site.

Nearby residents were evacuated and power was cut off as a precautionary measure.

Another fire at a building on a construction site on the 3600 block of Peralta Street in the early morning hours was quickly extinguished, the Chronicle reports. The fire department is looking into the cause, which was deemed suspicious.

Monday evening, a 25-story building at 405 Davis Court in San Francisco’s Financial District caught fire, burning on the 12th through 16th floors.

No one was injured in the fire, which was first reported shortly after 5 p.m., according to the San Francisco Fire Department. While there were no injuries, multiple people had to be rescued. The cause of the fire is being investigated.

The fire burned for about 45 minutes.

 

 

Read more on Bisnow SF

 

 

 

More density and time for Brooklyn Basin development as proposed

With only 241 of the fully-entitled project’s 3,100 units of housing to rise on the Brooklyn Basin site along Oakland’s waterfront currently under construction, the Signature Development Group is now seeking approval to add another 600 apartments to the project’s total.

As proposed, the additional units could be “accommodated” within the building envelopes for the development as already approved, without any changes to heights, massings or setbacks. But if approved, the overall timeline to complete the Brooklyn Basin development, which was expected to be completed by 2029, would be extended to 2038.

In addition to the increased density, Signature’s proposed changes also include an additional 158 boat slips around the future Shoreline Park, a new water taxi loading dock, and the potential flexibility to shift the approved locations of the development’s five towers which are currently entitled to rise up to 240 feet apiece.

 

Read more on SocketSite

 

 

 

San Francisco startup to build 270-unit ground up development in SoMa as part of co-living push

Starcity, a co-living development startup that is known for building “dorm living for adults,” is planning to erect a 270-unit building dubbed “Minna” in SoMa as part of its latest development push.

It also is eyeing a downtown San Jose property three blocks from Caltrain for more than 750 units.

Starcity’s model of private rooms paired with shared spaces can boost the number of units or rooms in an apartment project threefold, the company said in a statement Wednesday morning. Along with ground-up developments, the company converts and renovates defunct or underused commercial spaces into communal living spaces geared toward a middle-income demographic squeezed by high housing prices.

The San Francisco-based housing developer said Wednesday that 50 percent of the units will be affordable in the project at Minna & 5th Streets. Starcity currently has four San Francisco properties it owns and operates, with nine more in the pipeline.

Read more on San Francisco Business Times

Apartment rentals make up a larger share of new housing units in the U.S. than they have in decades

New preferences, low affordability of new homes drive greater demand for apartment rentals.

Apartment rentals have been luring residents away from other kinds of housing since the housing crash—and that is not likely to change in the foreseeable future.

“Apartments should continue to play a role in the total housing market that goes beyond the historical norm,” says Greg Willett, chief economist for Real Page Inc., a property management software and services provider based in Richardson, Texas.

In the years after the Great Recession, millions of people lost homes to foreclosure and had to move, often into apartments. The extra demand for units was not expected to last more than a few years. However, today—more than a decade after the collapse of Lehman Brothers—the percentage of American households that own their own home is still near its low point. New households are still much more likely to chose to live in rental housing than in the years before the crash.

 

 

Read more on National Real Estate Investor