SF Multi-Family Residential Market - Compass Commercial

The San Francisco 5+ Unit Apartment Building Market

January 2020 Report

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The San Francisco 5+ Unit Apartment Building Market

July 2019, Mid-Year Report

by Compass Commercial

An interesting 2019 so far: Stock markets have hit new peaks; interest rates have hit multi-year lows; the SF unemployment rate dropped to a historic low; Bay Area unicorn IPOs have rolled out one after the other; SF residential and office rents have ticked up; consumer, corporate and governmental debt levels - nationally and internationally, across virtually every sector - have hit all-time highs; and SF median home prices hit new peaks in Q2.

The below report

reflects sales across an enormous range of buildings of different size, quality, location, type and era of construction, unit mix, tenant profile, rent control effects,

expense ratios and other characteristics. It is impossible to know how any of these sales or statistics apply to any particular property without a specific,

tailored comparative market analysis.

Review of Sales - Last 12 Months

Legislative Update - New Limitations on Sale

SF has enacted a new law called the Community Opportunity to Purchase Act (COPA) impacting Sellers listing or selling buildings with 3+ residential units and lots zoned for 3+ units. It is designed to provide certain Qualified Nonprofit Organizations (QNOs) preemptive opportunities to purchase such properties. As of 9/3/19, Sellers of such properties will have to provide formal notice to these organizations of their decision to sell before they solicit offers or place such properties on the market.

COPA applies to SF multi-family residential buildings on which (1) 3+ residential units exist, including mixed use properties; (2) lots on which 3+ residential units are under construction; and (3) vacant lots on which 3+ residential units could be built. By September 3, 2019, the Mayor’s Office of Housing and Community Development plans to publish the list of QNOs and to issued rules pertinent to implementing COPA. Buyers - especially those affected by 1031 exchange deadlines - and sellers having any questions should engage a qualified San Francisco real estate attorney. Your agent can provide you with a more detailed outline and list of FAQs which the SF Association of Realtors has created.

General Financial Indicators - Updated through Mid-Year 2019

Supply & Demand Statistics

If you would like to receive the list we have compiled of year-to-date San Francisco 5+ unit apartment building sales, with their specific parameters of sale, please let us know.

Rent Rate Trends - Average & Median Statistics

New Housing Construction Pipeline

Demographic Snapshots

Sales by Broker

San Francisco 5+ Unit Apartment Market

Prices, Rents & Sales Statistics; Employment; New Construction and Economic Indicators

April 2019, Q1 Report

A substantial portion of Q1 statistics reflect new listings and accepted offers occurring during the mid-winter market doldrums (Thanksgiving to mid-January). In November and December 2018, the stock market plunged drastically from its all-time high in September, and interest rates hit their highest point in years: These factors negatively affected buyer demand. Then both turned in dramatically positive directions in early 2019. So, Q1 statistics reflect economic conditions in both Q4 2018 (very negative) and Q1 2019 (very positive). It is also the quarter with the lowest sales volume.

The spring selling season - whose data starts to show up in March, but is mostly reflected in Q2 data - is the most active of the year. As always, there are many economic factors at play impacting Bay Area markets, some of which are discussed below.

Supply, Demand & Sales

The number of active listings on the market, as posted in MLS, has been increasing considerably on a quarterly year-over-year basis.

The number of closed sales - reported by April 2nd - plunged in Q1 (a few more Q1 sales may show up in coming weeks). However, as of 4/2/19, 36 listings are designated as in contract, which implies a much higher sales volume in Q2. The second quarter often sees the highest number of sales.

Average days-on-market, as calculated on the limited number of Q1 sales, hit its highest reading in over 3 years.

Standard Financial Metrics

As noted above, the first quarter of 2019 saw a very low number of closed sales, which renders its statistics of limited meaningfulness and reliability. However, below are annual trend charts through 2018, with annotations of Q1 data. If Q1 trends continue, they would certainly indicate a distinct softening of the market, but the mid-year data will be much more reliable for these indicators.

Gross Rent Multiple: Based upon the limited number of Q1 2019 sales, the average GRM year to date was 14.8, a significant decline from recent annual readings.

Cap Rate: Based upon the limited number of Q1 2019 sales, the average Cap Rate year to date was 4.8, a significant increase in recent annual readings.

Price per Unit: Based upon the limited number of Q1 2019 sales, the average Price per Unit year to date was $462,000, a small decline from full-year 2018.

Average Dollar per Square Foot: Based upon the limited number of Q1 2019 sales, the average $/Sq.Ft. year to date was $536, a 4.5% decline from 2018.

2018 District Values & Statistics

This recap of sub-market values for 2018 will be updated at mid-year.

San Francisco Rent Trends & Household Incomes

SF rent rates have declined somewhat from peaks in late 2015, but remain the highest in the nation. With the median list rent for a 1-bedroom apartment at about $3500, and a median SF tenant-household income at $76,400, housing affordability has remained a large social, economic and political issue.

Selected Economic Factors

San Francisco Commercial Lease Rates

Companies have been competing feverishly for new office space in the city. Presumably they plan to fill these buildings with new employees.

Financial Markets

A wild ride in stock prices, particularly in high-tech: Prices soared to new peaks in summer-early autumn 2018, plunged drastically in Q4 2018, and then saw the biggest Q1 jump in 20 years. Huge amounts of wealth appearing, disappearing and reappearing - a major influence on consumer confidence.

A new surge of large, high-tech unicorn IPOs - mostly of firms headquartered in SF - has just started to roll out. IPOs have historically created vast quantities of new wealth in the Bay Area, though the magnitude of the effect of this new wave on the residential and investment real estate markets is yet unknown.

New Housing Construction

In recent years, rent rates have been considerably impacted by newly constructed apartments coming on market and increasing supply. 2018 saw a plunge in such construction - probably due to increasing land, construction and affordable housing costs.

Bay Area Employment Trends

A critical factor underlying Bay Area housing markets has been the staggering increase in employed residents since 2010. Outward-bound migration trends of residents and businesses - often citing housing costs as one major motivator - have been an increasing concern in recent years, but for the time being, employment numbers have continued to grow.

Market Share by Broker

The recent mergers of Paragon, Pacific Union, Alain Pinel and Hill & Co. into Compass have created a brokerage that dominates the market for multi-unit residential properties in San Francisco.

It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis.

These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

The San Francisco 2-4 Unit Building Market

Prices, Rents & Sales Statistics; Employment; Interest Rates and New Construction

April 2019, Q1 Report

The spring selling season - whose data starts to show up in March, but is mostly reflected in Q2 data - is the most active of the year. As always, there are many economic factors at play impacting the Bay Area housing market, some of which are discussed below.

Median Sales Prices

Median sales prices for SF 2-unit buildings have generally plateaued over the past 4 quarters.

With relatively minor fluctuations, the median sales price for SF 3-unit buildings has been relatively stable for 5 quarters. (There are not enough sales of 4-unit buildings to measure median prices on a quarterly basis.)

Listings & Sales

The number of active listings on the market in March 2019 was down about 10% from March 2018, but about the same as in March 2017. Listing activity usually increases through May-June.

The number of sales in Q1 2019 was down about 33% from Q1 2018, but, as of early April, there were 59 listings delineated as being in contract in MLS - which suggests that Q2 will see a significantly higher sales volume.

Average Days on Market

Average days on market in Q1 2019 were the highest since summer 2017, but are not particularly high by historical norms. Days on market usually drop in Q2 as the market heats up in spring.

2018 District Values & Sales

These recaps of 2018 sales will be updated in our July report.

Rent Rate Trends & Household Incomes

SF rent rates have declined somewhat from peaks in late 2015, but remain the highest in the nation. With the median list rent for a 1-bedroom apartment at about $3500, and a median SF tenant-household income at $76,400, housing affordability remains a huge social, economic and political issue.

Selected Economic Factors

The large increase in new apartment units coming on market in recent years has been a very significant factor in rent rates. 2018 saw a plunge in construction.

A gigantic factor underlying Bay Area housing markets has been the staggering increase in employed residents since 2010. Outward-bound migration trends of residents and businesses - often citing housing costs as one major motivator - have been an increasing concern in recent years, but for the time being, employment numbers have continued to grow.

A new surge of large, high-tech unicorn IPOs - mostly of firms headquartered in SF - has just started to roll out. IPOs have historically created vast quantities of new wealth in the Bay Area, though the magnitude of effect of this new wave on specific market segments is yet unknown.

There has been a stunning decline in mortgage interest rates from mid-November 2018 through the end of March - excellent news for buyers.

Market Share by Broker

The merger of Paragon, Pacific Union, Alain Pinel and Hill & Co. into Compass has created the brokerage which dominates the market for multi-unit residential properties in San Francisco.