NAI Northern California's San Francisco Multifamily Team is pleased to present our 2016 First Quarter Market Update. This issue will provide an overview of the San Francisco multifamily investment sales market, significant recent transactions, market investment trends, and notable current news stories. Our newsletter serves to provide readers with current market information in order to help them make the most informed investment decisions in this dynamic San Francisco multifamily market.
Significant Transactions
285 Turk Street
42 Units
Sale Price: $11,935,000
$/Unit: $284,167
$/SqFt: $490
GRM: 19.01
Actual Cap Rate: 3.17%
Sale Date: 1/28/2016
1330-1352 Haight Street
15 Units
Sale Price: $10,250,000
$/Unit: $683,333
$/SqFt: $475
GRM: 16.65
Actual Cap Rate: 3.60%
Sale Date: 1/26/2016
Sold by NAI Northern California
2730 Sacremento Street
12 Units
Sale Price: $8,900,000
$/Unit: $741,667
$/SqFt: $791
GRM: 19.57
Actual Cap Rate: 3.39%
Sale Date: 1/19/2016
2690 Great Highway
42 Units
Sale Price: $11,750,000
$/Unit: $376,190
$/SqFt: $369
GRM: 15.98
Actual Cap Rate: 4.04%
Sale Date: 1/26/2016
41 Octavia Street
12 Units
Sale Price: $6,800,000
$/Unit: $566,667
$/SqFt: $546
GRM: 19.48
Actual Cap Rate: 3.25%
Sale Date: 1/26/2016
355 Grove Street
12 Units
Sale Price: $5,860,000
$/Unit: $450,769
$/SqFt: $579
GRM: 15.78
Actual Cap Rate: 3.90%
Sale Date: 3/31/2016
Market snapshot
Below is a summary of four leading investment metrics and the direction they are trending as compared to the quarter prior.
Multifamily Valuation Trends 2012 to Present
Average Cap Rate
Cap rates for multifamily properties with 5-15 units have sharply declined from 5.59% recorded Q-1 2012 to their lowest point of 3.54%, recorded during Q-3 2015. Q-1 2016 has seen an uptick up in cap rates to 3.96%. Properties with 16+ units have trended similarly, but with slightly less volatility, decreasing from 5.46% in Q-1 2012 to its lowest average of 3.65% in Q-3 2014. Cap rates have ticked up to 3.92% in Q-1 2016.
Average GRM
San Francisco rents have surged with double-digit annual growth over the past 4 years; however, we have seen rental rate growth slow significantly over the last quarter. This change in rental fundamentals is having the most pronounced affect to GRMs and prices of San Francisco multifamily properties with 5-15 units.
Average Price Per SF
Across all sizes of multifamily properties, $/SF has increased, although increases have been far more dramatic for 5-15 unit assets. The fundamental reasons of owning property in San Francisco have attracted investors to purchase these kinds of assets to preserve capital, particularly for long-term holders.
Average Price Per Unit
Assets in the 5-15 unit range have seen phenomenal price per unit appreciation with a near doubling of average price/unit in just the last four years. The per unit price has surged from $258k/unit in Q1-2012 all the way up to $495k/unit ending Q1-2016. 16-50 unit assets have also seen strong price appreciation, but not quite to the extent of their smaller building counterparts. Average cost per unit on larger 16-50 unit assets had gone from $210k to $318k over the same period, possibly signaling room for additional price appreciation on larger assets.
in the headlines
Has the rental market finally reached its peak?
Wall Street Journal
After several consecutive years of rental rate growth in apartment market, particularly in the nation's largest metros, top analysts have recently noticed falling demand and decreasing rental rate growth from one year ago. This article from the Wall Street Journal shares a unique view on what might be expected for the apartment industry in some of the country's gateway cities like San Francisco.
Airbnb Vows "New Approach" to Culling Illegal Listings
Airbnb takes action to regulate illegal listings that may violate San Francisco's short-term rental policies. In a rental market where people struggle to find housing, City officials take a stand to make as many long-term affordable units available as possible...
Prop C Passes To Raise New Housing's Below-Market Requirement to 25%
San Francisco's Prop C officially passes, requiring new market rate residential developments of 25 units or more to set aside 25% of new units for low and middle income households which more than doubles the previous set aside of 12%. Will this legislation alleviate pressure in San Francisco's housing market or create more problems?
Finally, Relief for Bay Area Renters
Bay Area renters are finally able to breathe a sigh of relief as residential rents have started to flatten out. After years of rental growth throughout the Bay Area, the rate of appreciation for rents has declined slowly throughout the Bay Area. To read more about some of the contributing factors to this rental trend, click below:
NAI Multifamily Specialty Group
Jordan Geller
Vice President
BRE #01919128
415 727 9007 direct
707 373 5945 mobile
Jeff Dea
Investment Associate
BRE #01961523
415 366 0176 direct
415 517 8832 mobile
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