Will luxury condos sell in a pandemic? SF high-rise is the market’s first big test

A dozen years ago, luxury developer Tishman Speyer was in the middle of selling units in the Infinity condo complex when Lehman Bros. filed for bankruptcy and the stock market plummeted 20%. More than a third of buyers in contract at the time for units in the South of Market towers walked away from their deposits.

Now the developer is faced with the challenges of selling condos in the midst of a different crisis — a global pandemic. In June, Tishman Speyer opened Mira, the 392-unit tower just off the Embarcadero on Spear Street.

The tower, designed by notable architect Jeanne Gang of Studio Gang, stands out not just for its spiraling white facade but also because it’s the only major new San Francisco condo building to hit the market during the coronavirus era.

At Mira, 40 units have closed escrow and about half the building — some 200 units — are in contract. About 40% of the units in contract are below-market-rate units, which is consistent with the makeup of the building.

Despite the difficulties of selling condos in a downtown neighborhood mostly bereft of workers and dotted with boarded-up stores and restaurants, Tishman Speyer Managing Director Carl Shannon says the market conditions are not nearly as tough as those of the great recession.

“This is an economic disruption and it’s a terrible medical thing, but in terms of the condo market this is much better than 2008 and 2009 was,” said Shannon. “The economic disruption hasn’t been as severe, and people care more about where they live because they are spending a ton of time there.”

Shannon’s take on the condo market may be optimistic. But considering that 5 million Californians have filed for unemployment since March, brokers and developers say that sales and interest have held up remarkably well — especially compared with rents.

Rents plunged 12% in San Francisco from a year ago and are down nearly 20% in the South of Market, according to Zumper.

Median condo prices have dropped 4% from June 2019, dipping from $1.25 million to $1.195 million, according to Patrick Carlisle, chief market analyst for the brokerage Compass.

Garrett Frakes of real estate marketing firm Polaris Pacific said that the condo trade bounced back in May after weeks of “suspended animation.” For some, the pandemic has lent a new urgency for the need to upgrade living space, he said.

Frakes pointed to a recent client who traded a 600-square-foot junior one-bedroom for a 1,300-square-foot two-bedroom. “A 600-square-foot apartment may work for a couple when they are spending most of the day at work,” he said. “Then suddenly they are both trying to do conference calls at the same time and it doesn’t work as well.”

And while prices have not fallen as much as some experts expected, volume has slowed considerably during shelter-in-place. The second quarter saw 389 condos close, a 57.7% decline from the second quarter of 2019, and 504 units put into contract, a decline of 42.3%, according to Vanguard, another brokerage. The median time on the market for condos was 26 days in the second quarter, an 11-day increase over 2019.

The new challenges come as San Francisco has more new condo buildings opening than any year since the 2007-09 recession. Currently, 842 new condo units are on the market, and 637 resales, about a 61% increase over 2019, a year that saw developers delivering 1,801 rental units but only 86 condos, according to Polaris Pacific. In addition to Mira, new buildings selling units include One Steuart Lane, the Four Seasons Private Residences at 706 Mission St., 950 Tennessee in Dogpatch and the Crescent on Nob Hill.

The greatest weakness in terms of pricing and sales volume has been in the downtown and South of Market neighborhoods that have the highest number of new buildings coming online, according to Carlisle. Those neighborhoods tend to attract younger buyers, many of whom have left the city to shelter in place with their parents or in more affordable cities.

“Everything that everybody loves about the city is closed right now and people are thinking, ‘Maybe I should move somewhere where I have a little elbow room,’” said Carlisle. “Areas where many buyers are younger high-tech people have struggled.”

At a time when many common spaces have not reopened — amenities like swimming pools and gyms — buyers are prioritizing private balconies, backyards or terraces. “Outdoor space has gone from a ‘nice to have’ to a ‘must have’ for a lot of people,” Frakes said.

The increased premium put on private outdoor spaces bodes well for Mira, which has balconies on most of its units.

When newlyweds Peter Obara and Alicia Pistolese decided to move to San Francisco from Sydney, Australia, for work, they fell in love with the vibrancy of the burgeoning district around the Transbay Transit Center: the water, the Ferry Building, the restaurants, the Embarcadero. They bought a 10th-floor unit in Mira with a balcony and a view of the Bay Bridge and skyline.

“I thank God every day that we are fortunate enough to have that during the pandemic,” Pistolese said. “To be able to step outside to get fresh air — to have a place for your morning coffee or a glass of wine — has been amazing.”

Eric Tao, partner with L37, suggested bargain hunters are already scouring the market for deals. His company is starting to market 950 Market St., which features both condos and a hotel. Tao said that interest level is down 70% from before the pandemic, but that demand is strongest for studios that start under $500,000. That building opens in May 2021.

“About a quarter of the building is priced for first-time home buyers,” he said. “That has been a bright spot.”

Realtor Gregg Lynn, who specializes in high-end condos, said the north side of the city has been holding up better than the downtown, which has seen an increase in homeless encampments.

“The downtown homeless situation has been challenging for buyers to understand. It takes some imagination for buyers to see that, while this is a bad moment downtown, it will pass,” he said.

He said luxury buildings will likely have to slash prices to stay competitive. “You are selling into a market with small pool of affluent buyers and a lot of competition for those buyers,” he added.

Pistolese, who worked in tourism and marketing in Sydney, spent only two weeks in the city before the shelter-in-place started. She said that the number of new residential buildings in the area gives the street an unexpected vibrancy, but that she is looking forward to experiencing downtown after the pandemic.

“I just can’t wait for the restaurants to open up,” she said.

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen

Article source: https://www.sfchronicle.com/bayarea/article/Will-luxury-condos-sell-in-a-pandemic-SF-15401190.php

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