The State of San Francisco

Jay Greenberg reports on Q1 results for 5-9 unit and 10+ unit sector in a good article for the SFAA magazine. All in all it was encouraging in that multi-family sectors are certainly showing bullish signs after the housing bust. Sales are up, rental demand is strong and better pricing makes a compelling case for value.

5-9 Sector
This sector is now at the lowest price per sq. foot in five years. The price in 2007 was $296 and peaked in 2008 at $325. Q1 2011 is at $296 per sq ft. In 2007 the gross rent multiplier (GRM) was slightly better than 17. Q1 2011, we are looking at an average GRM of 12.09.

10+ sector
Price per sq ft in 20007 was $290. For Q1 2011 we are at $227. GRM in 2007 stood at 14.77. Today the average GRM is 11.22.

The San Francisco multi-family market continues to show relative strength with vacancy rates under 5% and rising rent rates largely due to the strong influx of talented people relocating to hire out at the big names such as Facebook or Google but a multitude of start up wunderkinds, drawing on a pool of talent drawn to the area. This pool of well paid talent is creating increasing rental demand in almost every area of San Francisco. The Mission and areas closer to 101 are the hottest, but everything is doing well.

The Politics of Housing
Housing now favors renting

Given a sea change in the Congressional attitude toward providing available funds for rental property and a great track record for Fannie and Freddie multi family programs. Their multi-family programs have outperformed with default rates of less than 1% and quite profitable, generating more than $2 billion in profit. With historically low interest rates, solid demographics and GSE capital available for proven success rates of rental property, this sector will continue to see demand and rising transactions and available cash for transactions .

Thanks for reading
Howard Sobel