Tech ‘Gold Rush’ locks up San Fran MF market

By Justin Slaughter  A well paid tech workforce streaming in from neighboring Silicon Valley is the latest Gold Rush to hit the city of San Francisco. With companies like Facebook, Google and Apple sponsoring private luxury coach buses that shuttle their employees down Highway 101 to work and back, thousands of tech workers are shunning […]

By Justin Slaughter 

A well paid tech workforce streaming in from neighboring Silicon Valley is the latest Gold Rush to hit the city of San Francisco.

With companies like Facebook, Google and Apple sponsoring private luxury coach buses that shuttle their employees down Highway 101 to work and back, thousands of tech workers are shunning the stale Valley suburbs to live in the eclectic and trendy San Francisco, able to afford a city with an average median rent of $3,500 a month for a one-bedroom apartment — the highest in the nation.

California_Clipper_500In 2010, just a few days into what would be a years-long stint in the city, I quickly realized it wasn’t so easy to find a room on my modest non-profit job salary. I spent months scraping the bottom of the Craigslist ‘for rent’ pages to find only sub-par, if not slightly scary, living arrangements; but even then I couldn’t find a landlord willing to pick me over higher income renters.

As venture capital continues to flood the local startup industry and Silicon Valley employees flood the city’s rental market, it will only get tougher; the latest US Census data shows that San Francisco’s population has grown by some 10,000 new residents during each of the last five years.

This prime real estate market must be selling multifamily apartment buildings like hot cakes, right?

Not really.

Buyers lucky enough to get their hands on property are holding onto it. And some astute lenders are reaping returns on the limited opportunity in the City of Love; Goldman Sachs for instance provided one of, if not the largest financing in San Francisco’s history with a $815 million loan on 62-property multifamily portfolio last month.

But with many multifamily owners refusing to sell, the options both for buyers and lenders are few and far between.

“Many San Francisco apartment buildings have become cash-generating machines,” said local firm Paragon Real Estate Group in a January report, “and prospective sellers would be challenged to find comparable returns in other investments. This reduces the motivation to sell.”

The report shows that as the average dollar per sq ft of San Francisco apartment buildings (with five or more units) that were sold rose to more than $500 in 2015, the actual number of units sold dropped a staggering 40 percent to 112 transactions.

In fact, San Francisco was the only top 30 city to chart a decrease in investment sales in 2015, slipping 5 percent to $14.26 billion and falling three spots to number eight on the list, according to a January report from Real Capital Analytics.

Patrick Carlisle, chief market analyst at Paragon, noted that because of the city Planning Department limits on development size, only 10 percent of the city allows for the density that major developers need to build on. This makes the development-ready land so competitive that most of that limited space is absorbed by high-end or luxury developers making the most competitive bids.

After over six months of searching, I finally found a room in a four-bedroom apartment with a friend and two Swedish college students. When the Swedes’ school year ended and my full-time job became part-time, I was forced to move into a windowless bedroom that used to be a storage room in a dingy apartment down the block.

Finally, through a friend, I found a rent-controlled room on Haight Street and Divisadero. On the curb outside my front door every morning, I regularly saw a line of twenty-somethings boarding their private bus to take them down Highway 101 to the Valley, while I sauntered past to catch the city bus downtown.

Justin Slaughter is Real Estate Capital’s US reporter.

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