3Q 2011 Market Update:

3Q 2011 showed higher pricing in duplexes, four units, and 5-6 units. 

 Pricing for 10+ unit buildings remained similar to Q2.

 The median price of duplexes rose nicely by over 10% this quarter to $1,120,000 from $1,010,000 last quarter.   Almost 35%, or 17 of the 49 sales had prices of $1.3M or higher.  $1.33M was the median sale price of duplexes in  Q3 2007—the year prices peaked.

 The median price and $/sq. ft. for four units rose for the second consecutive quarter to $1.35M and to $385/q. ft.   

The median price for 5-6 units rose for the fourth consecutive quarter to $1,510,000 and $/sq. ft. rose for the second consecutive quarter to $415/sq. ft.   

 The average gross rent multiple for 10+ units has remained quite steady for the last nine quarters.  During this period, the average GRM dipped slightly below 11 in one quarter and  has never been higher than 11.74.

 While the median price of triplexes fell in Q3 to $1,225,000 from $1,333,000 in Q2, this may reflect the condition or location of some sales.  Several high priced sales of three units with no parking also closed in Q3 in Pacific Heights/Russian Hill/Telegraph Hill.  Add those sales into the mix and the median price was $1,505,000.

 With only one sale in the 7-8 unit group, no trends could be seen.

 Three notable trends that the city wide statistics do not show.

Value in Duplexes.  Duplexes in the Avenues, Bernal Heights and the Mission District continue to have superior value over single family residences because of softer prices.   While there are unattractive tenant occupied properties in some lower priced duplexes, value can still be found. 

 Example:  the median sale price of a house in Central Richmond in Q3 was $808K.  Compare this with 3027–3029 Anza St.   This duplex has a vacant upper unit and a vacant in-law unit at garage level that was configured as a one bedroom with a kitchen/living area and bath.  The lower non-in-law unit is tenant occupied.  Monthly rent is $1,500.  The sale price was $787K. Even adding in costs to upgrade the owner’s spaces, a buyer still does better than buying a house.

 Opportunities in smaller income properties.  Sales volume of tenants-in-common interests have fallen 63% since the 2007 peak.  (Compare with condos, which had a 5% drop, with both experiencing some increase in 2011.)   Less competition for 3-6 unit buildings by TIC developers has meant better prices for income investors.

 Example:  385 29th Street in Noe Valley is a four unit rental building producing annual rents of $120,000.  It sold for $1,500,000.  This is very close to a 5% cap rate.  The buyer had the added benefit of using a residential loan that has a lower interest rate than commercial loans. 

 462 27th Street has six one bedroom units with parking.  It sold in Q3 for $1,250,000 or 11.57 X gross.   This investment should have a better cap rate than 5%, and it is located in a sunny, affluent neighborhood where the Q3 median sale price of a house was $1,290,000. 

Neighborhood Watch:  Lower Pacific Heights and Downtown.  One street south of California St. is Lower Pacific Heights and Downtown, which parallel Pacific Heights and Nob Hill respectively. 

The north south streets in Lower Pacific Heights are especially attractive and so are the smaller buildings for owner occupiers.  Prices for duplexes can be 10% to 25% less than similar buildings in Pacific Heights.  The   caveat is to look north of Bush Street as further south can be too close to subsidized housing.

 Downtown has been mentioned before:  There are good investment opportunities for rental properties.  Many residents are professionals who work downtown and pay higher rents.  1350 Pine St. sold in Q3 for $4,710,000 or about 9 X gross.  

 Notable Sales

•  1525-1527 Baker St. is a four unit mixed used building with no parking in Lower Pacific Heights that has an in-law space. Two 2 bedroom units were delivered vacant, including an updated one that gives a buyer an owner user option.  As a small income property, annual rents should be over $90,000 without including the rented in-law space or any rent increases to the below market commercial space.  Sale price:  $1,250,000.
• 30-32 Prescott St. in Telegraph Hill was a vacant, 2,116 sq. ft., uninhabitable duplex originally bought by the seller in May 2009 in a probate sale for $615K.  After spending two years to get approvals to build two units totaling 2,630 sq. ft., with views and decks, the next investor bought it for $775K.  
• 1521-1531 Jones St. in Nob Hill is a vacant, 6,480 sq. ft., six unit building with no parking.  Almost all units need renovations.  It sold for $1,628,000 or $241/sq. ft.  Will we see some TIC’s for sale here?  The median price of a 2 bedroom/2bath /0 parking TIC in Nob Hill/Russian Hill in 2011 was $588K (three sales).   The highest priced sale was 2336 Jones St., which should be close to 1,300 sq ft.  It sold for $650K.

 More on Pacific Heights:

•  1901 Pacific Ave. was formerly a mansion that became an eight unit building.  The seller accepted an offer within days of the first showing.  It sold for $2,395,000 or14.58 X gross annual rents.
• 2301 Scott St. is a six unit building that sold in 15 days for $3.4M or 15.36 X gross. 
• 2530 Sacramento St. is a vacant 2,550 sq. ft. duplex with parking that needs a complete renovation including reconfiguring the interior.  Listed at $1,295,000, it sold for $1,905,000 after receiving multiple offers.

 All square footage is based on tax records.  Accuracy is unclear.

 San Francisco Quarterly Market Updates