Peninsula Real Estate Primer 2020 / I

from Peninsula Real Estate Primer 2020 / I

PREP - Vol 2020 / I

Newsletter for Owners , Fiduciaries , Attorneys, and Financial Planners

Index - In This Issue:

San Francisco Peninsula Impressions:

**View from Green Ridge Drive at Pointe Pacific HOA toward Daly City**

Peninsula Market Trends

Single Family Homes

Te valuation and buying of single family units has always been primarily affected by self-use buyers. However, homes have also attracted investors, as well, and after the great recession, an influx of institutional grade investors was added, with REITS buying up single family homes in the Bay Area by the thousands. Foreign investments also fueled local purchases, thus, the past decade has seen price support from several sources. SFH investor activity ceased as market gains caught up with historic pricing. Market watchers have been waiting for indicators of trend changes. 2019 saw such an indicator, with 2020 being in uncharted territory: due to the pandemic, home sales were down 48% in YTY comparison and -20.4 % year-to-date, according to CAR’s 4/2020 market report. At the same time, less inventory may have led to the stabilization of prices at time of print.

Condominiums

Condominiums are the more affordable segment of single family units in terms of acquisition costs, and therefore often more attractive to first time buyers as well as individual investors in search of rental opportunities. Ongoing higher carry of HOA dues as well as restrictions imposed by CC&Rs has traditionally led some investors to avoid condominiums in favor of multi-unit properties. However, when purchased opportunistically and at a well-run HOA, condominiums have proven to be an advantageous investment: while dues are an expenditure, they can be likened to operating expenses that are fixed and thus more predictable than those occurring at single family homes or multi-units. Condominiums have seen similar value trends as single family units, however there has been arguably even more volatility in prices from 2007 to 2012 to the present.

**Data Source: CAR / MlsListings**
(c) Joseph Stein 2020

Multiple Factors

With high rents and limited housing options on the Peninsula, sales prices have not had the deterrent for individual landlords to purchase single rental properties, as would be expected purely looking at GRM. Also, value may have been locked in previously (for example, units are being purchased in 1031 exchanges), or properties may be part of estate planning, an exit of AB 1482 properties , or part of multiple use / multi generational real estate planning.

Market Trends: Multi-unit Housing

The multi-unit housing market has been impacted by several developments in 2020: for one, the passing of AB 1482 in late 2019 ushered in state-wide rent control for 5+ units apartment buildings. Secondly, the pandemic and the accompanying job losses have created unprecedented uncertainties regarding the ability for vulnerable tenant populations to pay rent. Lastly, the temporary cessation on unlawful detainer action and resulting deferments of cases has created a different environment for landlords and tenants, possibly for the near future. (2) Hence, market projections of average rent rates as well as sales prices per unit for the San Mateo area submarket are forecasting declines through 2021.(3) Low income housing seems especially hard hit throughout the state. (4) At the same time, such issues are less in plain sight in high-priced areas such as San Mateo County, where housing stock is diversified among longer term, smaller segments of landlords, and larger institutional landlords holding newer, more expensive housing stock.

**Data Source: Costar.com / MlsListings.com**
(c) Joseph Stein 2020

Uncertainties and Unknowns

Some anecdotal evidence is displaying the human face of the crisis. Landlords are forgiving rent, making concessions, or arranging for work-out agreements with tenants, who may be facing extreme, sometimes existential, hardships. Yet, the current landscape is ripe for confusion, as the state, the counties, and the municipalities of California are finding themselves in uncharted territory with several issues at once: the implementation of rent control, the pandemic-related emergency measures, moratoria or court closures. The projected rent rates seem to take this into account. Yet, the “check-mark” shaped rebound projection may also be a show of faith in the resilience of tenants and noninstitutional landlords, that by addressing this with the array of options and creative solutions, that they will weather this crisis together, however long it may be.

For San Mateo County (and the greater Silicon Valley area, for that matter) growth stemming from technology companies has always supported demand for housing. The counties’ location is ideal for professionals and families who need to access employment hubs that may be at opposite ends of the Peninsula. The wave of infill construction along the Caltrain corridor has produced primarily high-end rentals that are still more affordable than San Francisco. Their availability seems to influence the housing stock in general, with various tiers of affordability remaining and continuing. How long it will take to mend the overall disruption, may very well depend upon a national economic recovery. However, compared to other parts of the state and country, our tech industries seem to assist and help stabilize the residential market for now.

Trends and Upsides

Tech in Real Estate

Tech and the availability of tech-enabled services has become the greatest leveler in any industry, allowing myriad options for operators both large and small.

The Battle over Consumers

2020 may be remembered as the year that brought the virtualization to the forefront of all industries, including the real estate industry. While mobile search already had achieved dominance for consumers seeking housing options and real estate information, the importance of featuring properties online in a manner that allows consumers either to make reasonable pre-selections or to rent and/or buy remotely, have altogether become key elements in maintaining operations for many agents, sellers, and landlords, especially during shelter in place and social distancing measures. Virtual tours and virtually staged properties allow clients to preselect and narrow their real world touring to only those properties that meet their criteria. Once adopted, it is likely that this trend may drive consumer behavior long after it is no longer a necessity, but now an expected convenience.

**3D / virtual tours have become essential tools for the previewing and pre-selection of properties.**
(c) Joseph Stein 2020

Business to Business Applications

Less visible are the battles in B2B, where established providers are seeing their dominance disrupted. In the property management software space, established companies (for example MRI and Yardi, to just name two) have seen more competition evolve. Leaner offices are using SaaS providers such as Buildium or Appfolio, enabling a host of process-model based solutions. Also, newly designed systems often lack legacy routines, which can be liberating for users. Newer software architecture for wider user pools often requires less onboarding and enables the use of broader talent pools. These developments are not unlike the evolutions seen in the business data / crm environment, with a possible outcome being different providers settling on serving different client spheres.

**Virtual staging is now an ubiquitous feature, both for sales and rental listings.**
(c) Joseph Stein 2020

Commercial Outlook

Retail

In today’s connected age, retail space is becoming somewhat optional—or at least less important than it ever was. Brick and mortar retailers were already weathering headwinds over the past years. As the nation has been seeing the temporary closing of malls and the shuttering of retailers, more uncertainty remains for landlords, tenants, investors and lenders alike. While this was already a challenge before the pandemic, shelter in place orders and the ongoing uncertainty has given retail significant blows. The economy's response to social distancing remains fluid and full effects are yet unclear, but “a severe pull-back” in new leasing and transaction volume for the interim is expected.

**Data Source: Costar.com**
(c) Joseph Stein 2020

Retail fares somewhat better on the Peninsula than in many markets around the country: apparently, demolition and conversion of obsolete properties to higher and better use has kept inventory supply somewhat in check. Meanwhile, the metro's economic strength and population growth has led to an increase in density, while income growth has provided an expanding consumer base with greater purchasing power. Lastly, the trend of retailers catering to higher-income demographics continues to grow.

Industrial

Anyone who has witnessed the conversion of oldtime construction and automotive service spaces into tech spaces throughout San Mateo and the Silicon Valley can appreciate how relatively unaffected projections appear in the above chart regarding industrial occupancies. It seems that wherever roofers and car mechanics vacate, gaming firms and startups are moving in.

This may remain unchanged. The overall market has seen needs from logistics, flex space, and biotech tenants, as well as from smaller manufacturing in the Peninsula’s industrial parks. Lack of available zoned land and infrastructure, as well as severe supply constraints keep vacancies in check and fundamentals comparatively steady. The market's demand drivers and growth are appealing, but it's relatively limited inventory mutes sales. Pricing is above the national average, and cap rates remain low, but may face pressure as lenders take caution amid a pandemic induced recession.

Upcoming Listings: From Landlord to Landlord

At time of print, these properties are becoming available: some may be vacant, others may be tenant occupied. Let us know if you are interested in acquiring additional rentals, call (650) 375-1596. Properties can be acquired with tenants in place or purchased when vacant and - if desired - re-rented at that time. Notice: Anticipated list prices are based on comps at time of print and other considerations and are subject to change and market conditions at time of listing on MLS, and may vary, no warranties given.

2 Bedroom / 1 Bath SFH —330 Cavanaugh St, San Mateo Anticipated List $1,050,000 Type: single family 2 bedroom / 1 bath. Approx. size: 870 sq.ft. This property has been a rental since 2015 and has been vacated, with large lot that adjoins large PG&E lot in the Shoreview neighborhood. Recent state ADU legislation has made it easier to add Accessory Dwelling Units (ADUs) to existing housing inventory.

Individual Condominiums (Woodlake HOA San Mateo) Properties are part of Woodlake Association, an approximately 26 acre, 990 unit count, master-planned, award-winning condominium project on the north side of San Mateo, in walking distance to downtown Burlingame.

845 N. Humboldt Street Anticipated List $525,000 Type: Studio approx. size: 493 sq.ft. Current rent: $1,950 monthly HOA dues: $329 Term: vacant in June 2020

928 Peninsula Avenue Anticipated List $645,000 Type: 1 bedroom approx. size: 693 sq.ft. Current rent: $2,450 monthly HOA dues: $458 Term: month to month beginning July 2020

801 N. Humboldt Street Anticipated List $645,000 Type: 1 bedroom approx. size: 693 sq.ft. Current rent: $1,750 monthly HOA dues: $458 Term: month to month beginning July 2020

827 N. Humboldt Street Anticipated List $855,000 Type: 2 / 1.5 townhome approx. size: 1151 sq.ft. Current rent: $2,800 monthly HOA dues: $652 Term: vacant in June 2020

New Construction Revisited

Bay Meadows, San Mateo: Impressions from a long-term redevelopment project

With over 20 years in the making, Bay Meadows has been converted from a former race track to a significant and successful neighborhood in San Mateo.

The blended mix of residential and commercial properties - along with acres of master-planned open space and the Nueva School campus - can be touted as an urban planning success. Construction in phase II is still ongoing, however the established ecosystem of housing, office space, retail, and parks has been very well received. The retail includes upmarket ice cream and coffee shops.

The outdoor Fieldwork microbrewery has become a focal point of the neighborhood, drawing crowds from the cluster of offices and surrounding neighborhood residences alike. Meanwhile, Bay Meadows Park has become an established location for AYSO youth soccer games throughout their busy seasons.

Metrics

Site Size: 80 acres. Residential: 1,000 units. Office: 780,000 square feet. Retail: 40,000 square feet. Public Parks: 18 acres.

Editor's Note

As architect Mies Van Der Rohe once stated, less is more.

This publication intends to share less, but better, information with our clients and our network in San Mateo County. With a constant acceleration of technology and news cycles, the need to remove the noise and to just share what is important is now greater than ever. What better time to create this newsletter than during this moment of reflection and deceleration? Perhaps you will find this information helpful. Your feedback is most welcome.

Our team serves 235 property owners and families on the Peninsula with the leasing, management, maintenance, and the listing and selling of their properties. We service multi-family, condominiums, single family, estates, and commercial properties. We work with individual owners, with groups of owners, with attorneys, with fiduciary services, with family offices, and with advisors. Our clients are diverse: from individual owners of one rental to multi-property family portfolios; from single beneficiary trusts to groups of investors or beneficiaries; from novices to accredited investors. And all of our clients goals are the same: diligent personal attention to property management and real estate services, and stewardship of their properties. Our local stewardship & service began in 1987. Some clients have been with us since inception and some are now with us in second or third generation.

My hope is that this concise publication gives you more: more of all the services that we provide and that you already have grown to know and love. Whether leasing & property management, listings & sales, pro formas & broker price opinions, development & usage ideas — we cover the whole spectrum, and all of the Peninsula’s real estate. And we are always here for you.

Joseph Stein, Broker / President DRE01337170 Realty World Peninsula | Woodlake Anchor

Highlight:Passive Solar High Rise

Today’s highlight is an award-winning, passive solar high-rise project. The urban setting for this design creates a dynamic interchange between existing buildings and new architecture, juxtaposing the main high rise against perimeter buildings and the urban fabric. At 240 feet height, the slender floor plan is clad in a dual window / triple glazing envelope with air space that works as a conduit for natural ventilation in the summer (removing solar heat gains) as well as a warming buffer during the winter. The glass enclosed elevator shaft creates a visible landmark both during the day as well as at night. Winning a coveted design award in 1998, its clean architecture, energy concept, and passive solar design is still forward-looking in 2020. [© Joseph Stein, design by the author.]