S.F.'s Overwhelming Undersupply Issue
The consensus at Bisnow's 600-person State of the Market event this morning is we are sitting in the center of the universe when it comes to housing (and here we thought we were sitting in Hotel Nikko). Despite demand, however, there's still a big shortage.
Prado Group prez Dan Safier’s approach is to buy rent controlled properties, renovate and reposition them to create high-quality housing stock. While it’s not an institutional product, going after rent-controlled assets has been a great way to enter the hot market. One recent development is the Whole Foods-anchored mixed-use project at 38 Dolores. He’s renting to all income levels across town, from $1,000 per unit up to $8,000 for luxury product. While there was a 35% rent increase last year, his product saw a 9.3% boost, which speaks to the new number of units coming online. S.F. is still finding itself in a state of undersupply, which is only going to create greater rent spikes. (It's also gonna force you to make more space on your couch.)
While we are living in the center of the universe when it comes to real estate, Wilson Meany managing partner Christopher Meany points out that S.F. has a history as a volatile market. Cycles are coming faster and sharper (our haircuts go out of style before we get out of the barber's chair), so the challenge is to create a product with lasting value when it has three to seven years of delivery time. There’s demand for smaller units because of their affordability factor, but he is worried about making sure amenities in those units are livable over a long period of time and can survive the next down cycle.
MacFarlane Partners prez Greg Vilkin says the housing shortage will continue and become more acute. While there are both high-end and inclusionary housing options, S.F.'s middle class is out of luck. If someone’s making $60k in S.F., he says, there’s nowhere to live. (Unless they want to sleep at their desk.) His product in Seattle goes for just $2.20/SF, and that's why employers like Amazon are expanding there over S.F.; an engineer can get paid $80k and expect a high quality of life. Here, they wouldn't even qualify for a studio in the city. Unless public policy bridges that gap with more workforce housing, we are going to have a real problem, he says.
Lionakis senior associate Gordon L'Estrange, who moderated, calls himself a development junkie, and he notes the success of MacFarlane's new Venn on Market project, which commands $4.80/SF average rents that aren't far from high Brooklyn prices. Lifestyle is changing the way projects are executed, he says. He touched on the mayor’s seven-point plan to deal with the housing shortage, which he says would increase control yet encourage improvements in the development process. He asked speakers whether they expect to see the housing market continue to grow or enter another lull; they see no end in sight.
Environmental Building Strategies principal Matt Macko does work that’s attractive to the Millennial generation. He knows what they want, since 70% of his firm is made up of that age group. (It's a lively after-work happy hour.) He says a rooftop farm in Berkeley and communal spaces for the Panoramic micro units at 9th and Mission are changing the way people live. He recently attended ULI in Chicago, where the "sharing is caring" mantra was loud and clear and he heard mentions about shared kitchens. Ecodistricts, a newer concept in S.F., goes back to the idea of sharing the economy and resources in a localized area, he says, which can be as small as a single city block.
HKS SVP Brendan Dunnigan says his architecture firm is blurring the lines between different product types. For his market-rate apartment project in Mission Bay, he took lessons learned from work on the Four Seasons and applied a concierge service to the lobby that makes it feel high end and luxurious. That’s the equivalent of taking a regular Mercedes and then packaging AMG onto it, he says. Another blurred lines example is the spec office building at 50 United Nations Plaza that was adapted for the GSA. HKS is also in the sports arena, having done Dallas Cowboys stadium, and he says Oakland works for sports because of BART. He’s studying other models like LA Live and has an interest in the potential of the west side of 880.