193 unit San Francisco complex sold at $730/sqft.
SocketSite, San Francisco's property evaluation blog, reports on the $115 million record sale price for a new 193-unit luxury apartment complex in the new Mission Bay, valuing the units at $730/sq.ft. More interesting is the comment stream of readers trying to justify why the purchase was made - examples:What many of you seem to overlook is that UDR is a publicly-traded, investment grade REIT. Check their public filings - they recently borrowed $200MM at LIBOR+85. That's 3.6%. If that's the cost of capital on this project, it may well pencil out of the box.The purchase is puzzling considering the 30,000 or so units coming online in SOMA and Mission Bay over the next few years. However, developers may be factoring in San Francisco's Manhattan aspirations - the city wants to zone South of Market for a cluster of as many as seven skyscrapers. Business Week (4/24/08) states Manhattan median home prices jumped 18% in 2008Q1 compared to last year, and attributes new, luxury condos for the increase.
(According to this GlobeSt article, the cap rate is in the mid-4% range)If the developer can only sell those units individually for $600/sqft, why would they offer $730/sqft?
They understand that rents are going to rise around here for the foreseeable future. Note that the sellers had planned for a 9-month lease-up but they were able to get all 193 units into contract in just 4 months.
And San Francisco is up and coming as the urban center of a robust technology economy, unlike New York facing a spate of banking job losses.
Related articles:
Manhattanization of San Francisco - part 1
Manhattanization of San Francisco - part 2
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