Foiled deals for high-rise land could be a bad omen for S.F. real estate

12 Dec

Foiled deals for high-rise land could be a bad omen for S.F. real estate

Bad News: The SF Board of Supervisors is leaning against further real estate development since the recent November 2015 elections. Hopeful News: All the odd-numbered district supervisors are up for re-election in November 2016, so the political winds could shift back in our favor.


If you haven’t noticed yet, there’s an ugly confluence of factors creeping into San Francisco land deals. The city’s political winds have shifted at nearly the exact moment that some developers are losing their appetite for pricey San Francisco real estate.

Two botched public land sales this week are prime examples. Luxury residential building Crescent Heights has pulled out of its $165 million buy San Francisco’s last development site zoned for a high-rise building at Transbay Parcel F, reportedly over affordable housing obligations the city insists were clear from the start.

The Board of Supervisors also shot down the sale of 30 Van Ness after developer Related California offered 8 percent less for the site than the $87 million initially expected — and well under the $91 million that the city had agreed with Carmel Partners before that deal fell apart.

San Francisco has always been a city where investors need to accept paying millions just to get projects approved, but buyers are feeling more worried about overpaying for high-rise real estate development sites. If the surge in prices and land values that’s accompanied San Francisco’s real estate boom is slowing down, they can’t count on a rising market to bail them out.

Rents are now stabilizing. According to one real estate tracker, San Francisco rents actually dropped in November and home and condo prices have also slipped recently.

“It’s the elephant in the room. When you talk to developers, that’s the No. 1 topic we are all talking about,” Drew Hudacek, chief investment officer of developerSares Regis Group of Northern California, told me a few months ago. “We’re in a period of flux right now where people are trying to figure out whether they have projects that work.”

To be sure, San Francisco development land is usually a good long-term bet. Plenty of investors have made money despite poor market timing initially. Crescent Heights and Related, in particular, are savvy developers building huge and lucrative projects across the country. Both developers may also have been stymied in their efforts to buy adjacent properties in order to build bigger projects, sources tell me.