homesmillbrae.com

New rules have also made it much harder to qualify for an ARM, and their initial discount compared to fixed-rate mortgages has not been compelling.

With a fixed-rate mortgage, the rate is fixed for the life of the loan, giving borrowers the security of a stable payment.

With ARMs, the rate and monthly payments are typically fixed for a certain number of years, then go up or down periodically in line with market rates – subject to certain limits. A loan that is fixed for five years, then adjusts every year thereafter, is known as a 5/1 ARM. If it’s fixed for seven years, then adjusts every six months, it’s called a 7/6-month or just a 7/6 ARM.

ARMs got started in the early 1980s when mortgage rates were in the teens. They’re more common in high-priced areas. The metro areas where ARMs had the largest share of conventional mortgage originations in January and February were San Jose, Bridgeport, Conn., and San Francisco, according to CoreLogic. But they’re not for everyone.

If you’re considering an ARM, it’s important to know how they work.

The interest rate on an ARM is made of two parts: an index, which changes over time, plus a percentage or “margin” that remains fixed for the life of the loan.

Many ARMs today are indexed to the Secured Overnight Financing Rate, which replaced the London Interbank Offer Rate following a scandal over LIBOR.

Suppose you take out a 5/6-month ARM indexed to SOFR with a 2.25% margin, and SOFR is 3%. Your “fully indexed” rate is the index when the loan is made plus the margin, or 5.25%.

Your starting rate, fixed for five years, is the “note rate.” It could be higher or lower than the fully-indexed rate. At the five year mark, the rate and your payment will adjust – up or down – to SOFR on that date plus 2.5%.

ARMs are generally subject to three rate-adjustment caps. A 2/1/5 cap, for example, means the rate can’t change by more than 2% at the first adjustment period, by 1% at each subsequent adjustment and by 5% over the life of the loan. Rates generally cannot fall below the margin, in this example 2.5%.

These details are in the “Loan Estimate” borrowers get when they apply for a mortgage.

- Kathleen Pender

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When Victor Galvez and his wife sold their home in the outer Sunset and bought one in Long Beach, they chose a 30-year fixed-rate loan. “I wasn’t too excited about adjustable mortgage rates. I wanted to have better continuity,” he said. Plus, when they locked in a rate of 4.65% in mid-August, adjustable rates didn’t seem much lower. By the time they closed on their Long Beach home in September, fixed rates had risen by a full percentage point.

ARM rates typically start out lower than fixed-rate mortgages, so payments are initially lower. How much lower changes frequently and depends on the type of mortgage.

As of Tuesday, the average rate on a 30-year fixed-rate conforming loan was 7.15% versus 6.35% on a 5/1 ARM, a difference of 0.8 percentage point, according to trade publication Mortgage News Daily. At the end of December, both rates were around 3%.

Some people choose ARMs because they think interest rates will fall and they can refinance into a fixed-rate loan – or they plan to sell their home – before the first rate adjustment. In the meantime, they can enjoy the lower payments.

In the past, some chose ARMs because they could borrow more than they could with a fixed-rate loan. This helped prop up home sales and prices when interest rates rose. But this is not necessarily the case today, because it has gotten harder to qualify for some ARMs. “Underwriting is a lot more stringent,” said Joel Kan, deputy chief economist with the Mortgage Bankers Association.

As of last week, almost 12% of all mortgage applications were for ARMs, according to the association. That’s up from 3% at the start of the year, but their current share is far below the levels reached in late 1994, early 2000 and mid-2004 to mid-2005, when ARMs accounted for more than a third of all applications.

Separate data from BlackKnight show ARMs reaching 40% of loan originations, and 50% by dollar volume, in 2004-05. But today’s ARMs are downright sober compared to the ones being peddled in the maniacal years leading up to the mortgage meltdown in 2008.

In that era, ARMs often came with an introductory or “teaser” rate that lasted only a year or two before adjusting. Lenders could qualify borrowers based on those initial rates. Many ARMs in this era were issued to borrowers with subprime credit scores and required little or no down payment or proof of income and assets. Many offered the option of paying interest only – and in some cases not even the full principal payment – for a number of years. These loans were packaged into pools and sold to investors. When some started defaulting soon after origination, it caused a ripple effect that helped bring the financial system to its knees.

Since then, rules have changed. The Dodd-Frank Act requires lenders to make a “good faith effort” to make sure all borrowers have the ability to repay. This rule applies to virtually all loans whether they are fixed or adjustable, conforming (meaning they can be guaranteed by Fannie Mae or Freddie Mac) or non-conforming (includuing jumbo loans, which exceed $970,800 in most Bay Are counties).

When lenders make what’s known as a “ qualified mortgage,” it’s presumed they complied with this rule. A qualified mortgage can not have interest-only payments, negative amortization (where unpaid principal is added to the loan balance), terms longer than 30 years or fees that exceed a certain limit. The lender must verify the borrower’s income, assets and employment.

The lender also must qualify the borrower based on the highest rate and monthly payment that could apply during the first five years. That’s why you rarely see ARMs shorter than five years.

Lenders can still make loans that don’t meet the definition of a qualified mortgage, but they can’t be sold to Fannie or Freddie, so they’re taking on more risk. Typically these “non-qualified mortgages,” such as interest-only ARMs, are made only to highly qualified buyers. The vast majority of all home loans, including jumbos, are qualified mortgages.

When Donna Weber and Ed Roseboom sold their Palo Alto condo and bought a home in Fairfax, their mortgage broker encouraged them to take out a 7-year ARM, “which I was really not into at all,” Donna said. But the loan had a start rate of 4.875%, which as Donna recalls was about 1 percentage point lower than the fixed-rates at that time, in mid-June.

They were thrilled to get the Fairfax home for less than the asking price, which had already been reduced. But they couldn’t sell their condo before they closed on the new home in mid-July. “It took us five weeks. We got one offer under asking, and a big part of that was the mortgage rates,” Donna said.

When the condo sold, they were allowed to “recast” their loan, reducing the balance by about half, which is one reason they chose that mortgage. When you recast, you make a lump-sum payment toward the principal. The lender reduces your payments but the rate and term remain the same. The recasting fee was just $250.

Beth Phoenix, on the other hand, locked in a rate of 5.625% on a 30-year fixed-rate loan when her offer on a home in San Mateo with an in-law unit for her daughter was accepted two weeks ago. She had enough savings for a large down payment and didn’t need an ARM to qualify.

“I don’t have any interest in an adjustable-rate mortgage because who knows what’s going to happen with mortgage rates. And given that I’m going to retire in a couple years, it did not seem like a wise idea,” she said. “It seems like ARMs are mostly useful for people who are a little younger, don’t have a big down payment, but whose earnings capacity is expected to go up. They can get into a house at a fairly affordable rate and by the time the rate adjusts, presumably they will have more assets. That’s kind of the opposite of my situation.”

But talking to young home buyers about ARMs “is very, very hard,” said Michael Bellings, a Compass real estate agent in San Francisco. “All these Millennials grew up in an environment of really, really low rates. They think, ‘Oh my God, once my fixed rate is up, I’m at the mercy of the economic index.’”

Keith Gumbinger, a vice president with mortgage website HSH.com, said young buyers “may have seen their parents or friends of their parents get into ARMs that didn’t work out for them,” he said. “It wasn’t the ARMs themselves that were dangerous. It was the layering on” of risky features that blew them up.

There’s another reason ARMs are lagging in popularity. Fixed-rate mortgages tend to follow the 10-year Treasury yield while ARM rates follow shorter-term yields. Normally short-term yields are less than long-term ones, but in recent months, two-year Treasuries have yielded more than the 10-year. Because of this anomaly, investors aren’t eager to buy ARMs and lenders aren’t eager to make them, said Gunnar Blix, Black Knight’s director of housing markets research.

It’s also why ARMs haven’t been offering much of a discount to fixed-rate mortgages, although that’s starting to change and may cause more borrowers to embrace ARMs.

“Year to date, most of my clients have applied for 30-year fixed mortgages, with the plan to pay discount points (an upfront fee) for a lower rate,” said Westin Miller, branch manager with Pinnacle Home Loans in Santa Rosa. However, “the pricing spread between ARMs and fixed-rate mortgages has recently widened in favor of ARMs. I suspect more ARM originations in the months to come.”

A rush to ARMs, if there is one, “will not be a contributor to unsustainable pricing or unqualified borrowers getting into homes like we saw prior to the housing bubble,” said Greg McBride, chief financial analyst with Bankrate.com.

For borrowers, an ARM could make sense “if you expect your earnings to accelerate rapidly in the years ahead, such as a doctor or lawyer building a practice,” said Greg McBride. “But it’s not a risk most borrowers should take.”

If you can’t afford a home with rates and prices where they are now, “be on the sidelines saving for bigger down payment,’ said Dean Wehrli, principal with John Burns Real Estate Consulting in Sacramento. “The higher the down payment, the lower your monthly payment.”

Kathleen Pender is a freelance writer and former columnist for The San Francisco Chronicle. Email: kathpender84@gmail.com Twitter: @KathPender

Article source: https://www.sfchronicle.com/bayarea/article/mortgage-arm-loan-17518425.php

English

As home prices across the Bay Area continue to fall from the peaks seen a few months ago, San Francisco’s real estate market has been hit harder than most.

Although median home prices in the Bay Area writ large ticked down in the third quarter, San Francisco saw the single steepest decline of any county at 9%, according to a report from real estate agency Compass. That compared with a 1-2% decline over the same period for the entire region, according to Patrick Carlisle, the Bay Area chief market analyst for Compass. 

The year-over-year quarterly decline is the first in San Francisco’s single-family home market since the beginning of 2019. This year, a typical seasonal slowdown has coincided with still-rising interest rates, sky-high inflation, stock market volatility and declining consumer confidence. 

Carlisle attributed San Francisco’s outsize decline to a few factors, including the pandemic’s unique impact on the city and its demographics, as well as the negative spotlight placed on the city’s issues.  

“Add bad branding to high housing costs and mix in demographic shifts, and all those things have added up to San Francisco being hit harder than the outlying counties,” Carlisle said. 

He said that while the tech boom helped boost San Francisco’s housing prices to the top of the region in the pre-pandemic days, San Mateo, Marin and Santa Clara counties have leapfrogged the city more recently. 

In the third quarter, San Francisco’s median home sales price was $1.65 million compared to $1.8 million one year prior. The figure brings median prices roughly to levels last seen in the third quarter of 2020.

The recent decline in home prices ranged by neighborhood, however. Neighborhoods that saw some of the largest drops included the Sunset and Parkside (-12%), the Mission and Bernal Heights (-11%) and the Richmond (-18%). On the other hand, median home values around West Portal and the Excelsior increased. 

Condo prices, which were hit hard during the pandemic, are continuing to slide. 

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The $1.15 million median sales figure for condos was down 5% from one year prior. 

Although the housing cooldown has raised concerns of a mortgage crash, Carlisle pointed to mortgage delinquency rates—typically an indicator of instability in the housing market—remaining close to an all-time low.   

Instead, Compass’ report likened the correction to “a slow leak in an over-pressurized tire than a blowout on the highway at high speed.”

“One of the major things to understand about the housing market is the psychology that underlies and drives it,” Carlisle said. “Because the market has been so crazy hot for the last two years the whole concept of what’s normal has shifted.”

English

Article source: https://sfstandard.com/business/san-franciscos-housing-market-is-cooling-faster-than-rest-of-the-region/

Good afternoon Bay Area! Hey, I’m Tony Leong, one of the executive producers here at NBC Bay Area and I’ve been tracking all of the housing stories you need to know about this week. Let’s get started. 

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The latest

Would-be homebuyers are getting hit twice. Interest rates are soaring and it is getting harder to qualify for a loan. The average rate for a 30-year fixed mortgage is now more than 7%. And mortgage credit availability is at the lowest level since March 2013. Lenders are worried about a possible recession, leading to more homeowners defaulting on their loans. CNBC takes an in-depth look at the numbers here.

We told you about this last week, the ongoing cleanup of a homeless encampment near the San Jose airport.  Now we’re learning that at least 15 owners of RVs, trailers, and vehicles have taken up an offer of $500 from the city of San Jose. By the city’s count, 97 vehicles are still there at the encampment at Columbus Park. Those who refuse to take the deal to leave will be given notices on a rolling basis between now and Nov. 18 to immediately vacate the park. The goal is for the park to be cleared out by that date. Watch Robert Handa’s report for the latest.

A tale of two Bay Areas. Fremont is among the safest places to live in the country while Oakland is among the riskiest. That’s according to new rankings from Wallethub, that compared 182 cities and looked at three key dimensions: home and community safety, natural disaster risk, and financial safety. Fremont is ranked as the 17th safest city to live in the country, the highest California city on the list. On the other end, Oakland ranks 8th among the riskiest cities to live in the U.S. Watch the rankings.  

Cooling down heating up

Cooling down: Home Prices in the Bay Area. This could be good or bad news for you, housing prices are dropping in the Bay Area and are expected to keep coming down next year. The California Association of Realtors is predicting home prices here will drop about 9% more in 2023 and they also expect sales to slow as the market cools. Watch NBC Bay Area’s Raj Mathai speak to a realtor about the shift.

Those higher rates are leading to home prices dropping too. The average home price across the country is down about 2%, or $8,800, off its June peak of $438,000. But we all know that Bay Area prices are way higher than that. A new report says home prices are off their peaks in 97 of the 100 largest U.S. markets, but they’re still roughly 40% higher than they were before the pandemic.  Read more about what’s happening with homes prices.

Heating up: Inflation. You’ve seen the prices go up at the grocery store and gas station. Well, it’s confirmed, inflation jumped by 8.2% in September versus a year earlier, that’s higher than analysts expected. But a slight decline from August. To break it down easier, a basket of goods that cost $100 a year ago, will now cost you $108.20 today. And “core” inflation, which takes out food and energy costs, jumped to its highest level since 1982. See a chart on how inflation affects prices.

Listings on fire

NBC Bay Area

Is this a flipper’s dream? A burned-out home is on sale in Oakland for more than $765,000. The 4-bedroom, 2-bath is listed on Redfin as a “Rare opportunity to get in for less.” It’s located in Oakland’s Laurel District and is described as a “highly walkable, dog-friendly, and health-focused area!”   

See a listing that’s too good to be true? Tell us about it by sending @NBCBayArea a direct message on Twitter or Instagram. You can also send us a message on Facebook.

Chris Miller/One Point Media Group; Getty Images

“Burning Love” isn’t just the name of an Elvis hit, it’s also the feeling you might get after you buy one of the King of Rock’s former homes. The Palm Springs home that Elvis and Priscilla Presley rented for a year just after their marriage in 1967 is hitting the market for $5.6 million. The 4-bedroom, 5-bathroom, 4,600-square-foot property earned the name “House of Tomorrow” because of its the futuristic design. See more photos here. 

Making it in the Bay

Relief is on the way. This week, California’s ‘Inflation Relief’ Payments are going out. The first payments are expected to hit accounts this Friday with a second around on October 28th. Payments range from $200 to $1,050. It all depends on how much you make. California created a calculator to see how much you’ll receive here. 

Two Bay Area Cities top the list of the most expensive U.S. Cities based on monthly expenses. Can you guess what they are? The list from Doxo calculates expenses by adding up Mortgage/Rent, Auto loan, Utilities, Insurance, mobile phone bill, and other items. People living in San Jose pay the highest monthly bills, with an average of $3,151 or 66.8% higher than the national average of $1,889. See what the second highest city here.

Beyond the Bay Area

You think rent prices are bad here? Check out what happened to this renter back east in New York. Her Manhattan apartment was $1,881 in 2020, increased to $2,400 in 2021 and jumped another whopping $1,100 to $3,500 this year. So, what will she do? “I’m going to put my stuff in storage and go to Europe and work remotely there.” What’s going on in NYC? CNBC has insight into unique challenges facing renters. 

We jump from the big apple to across the pond where mortgage mayhem is sparking fears of a housing market crash in Britain. A swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers. If interest rates remain the same, Oxford Economics estimates that house prices will be approximately 30% overvalued. Read more from CNBC’s Money Report.

By the numbers

Our NBC Bay Area business and tech reporter Scott Budman is always keeping a close eye on the latest housing stats. Be sure to follow him on Twitter @ScottBudman for more.

#New: The median home price in San Francisco is down 7.3% since this time last year.

Median price August: $1,582,000
Median price today: $1,400,000

Source: @Redfin

— scott budman (@scottbudman) October 10, 2022

#Update: As mortgage rates hit 7%, the average home monthly payment has changed in 2022:

San Jose:
January: $4,300
September: $7,000

San Francisco:
January: $3,800
September: $6,400

Source: @zillow

— scott budman (@scottbudman) October 11, 2022

#New: Even with interest rates rising, these have jumped in cost over the last year:

Plane tickets: +43%
Eggs: +31%
Health Insurance: +28%
Butter: +27%
Gas: +18%
Coffee: +17%
Cereal: +16%
Electricity: +16%
Bread: +15%
Milk: +15%
Pet Food: +14%

Source: Consumer Price Index

— scott budman (@scottbudman) October 13, 2022

Investigative series: Overpriced, Overwhelmed, Over It!

Are real estate investors to blame for the housing crisis? While many investors say they add value to neighborhoods, neighbors, and tenants impacted by the developments say they expedite gentrification. In episode 1 of our digital-exclusive investigative series, “Overpriced, Overwhelmed, Over It!”, we explore why in some areas cash is king. 

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Article source: https://www.nbcbayarea.com/news/local/making-it-in-the-bay/housing-deconstructed-newsletter-bay-area-housing-market-cooling-down-burned-out-house-listed-for-765k-and-sj-offers-rv-owners-500/3032454/

But if creating housing from office space is such a good idea, then why hasn’t it happened? Local developers generally say it’s too expensive and difficult here — even though it can cost less than bottom-up construction in some cases.

It also looked too expensive and difficult in Calgary, Alberta, until the government did something about it. Canadian officials responded to the long-term decline of its business district with a 10-year, $1 billion initiative — equivalent to about $721 million U.S. dollars — to transform the area into a diverse, thriving neighborhood, in large part by funding and fast-tracking projects that convert offices to housing.

Similar strategies could help conversions pencil out in San Francisco, local builders say.

“As it stands today, these projects are unfeasible,” speculated Strachan Forgan, principal at SCB, the architecture and design firm for one of the city’s few recent conversions at 100 Van Ness, a 28-story, glass covered building that yielded 418 housing units near City Hall when it was completed in 2015. Projects like that could become more possible if “construction prices fall off a cliff because of the recession — or if the government changes policies” to make them cost less, he said. Efforts to make projects more doable would need to survive the city’s fractious politics, and factor in the major costs to developers of satisfying the city’s affordable-housing requirements.

San Francisco officials have begun openly discussing the possibility of repurposing buildings, though housing is just one potential new use, they say.

Office conversions are gaining traction in many other cities, including Cleveland and Atlanta, thanks to their potential to breathe life into downtown areas hobbled by the pandemic. In Washington, D.C., the mayor is considering tax and other incentives to make them more feasible.

In New York City, conversions added thousands of residents to lower Manhattan in the aftermath of the Sept. 11 attacks, making it the city’s fastest-growing neighborhood. Today office buildings in the Big Apple are once again transforming into homes and a task force is exploring how to make that work easier.

San Francisco’s downtown should follow suit, becoming more than a place where people go to work, said Karen Chapple, director of the School of Cities at the University of Toronto. Along with colleagues in Toronto and at UC Berkeley, Chapple recently studied cell phone data to measure downtown recoveries in more than 60 North American cities and found San Francisco to be the slowest. Though the streets show signs of renewed life as tourism gradually recovers, recent data shows that San Francisco’s office vacancies have climbed to record highs.

“In the end, San Francisco is going to have to figure out why people should come there,” Chapple said, “and that means rethinking itself entirely, probably.”

The work “can’t be building by building,” Chapple said. Instead, the time is right for a broad initiative that converts buildings, she said, as society learns to live with COVID-19 — an idea endorsed by other urban thinkers and economists.

Between office workers and tourists, San Francisco’s downtown was doing well enough right up to COVID-19’s arrival, though its relative lack of housing made it much less vibrant outside working hours. Many have wondered whether it would bounce back as the threat of the virus receded, but new factors indicate that it won’t. Recent bids for office buildings have been far below seller expectations, and other properties’ owners are applying to have their values adjusted downward, portending widespread drops in the tax revenue that funds public services.

In coming years, the city could find itself in a similar position to Calgary, making the Canadian city’s choices potentially instructive.

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The need to be creative

Unlike in San Francisco, Calgary’s downtown was long in decline. Energy companies departed after oil prices crashed in 2014, and, when the pandemic spurred remote work, it became clearer that the area would not recover. Falling real estate values meant that if the government didn’t spend money on a long-term solution, it would keep losing tax revenue anyway.

The government pursued office-to-housing conversions for their dual benefits: reducing the overall supply of office space so that the remainder was more valuable, and increasing the housing supply.

Wary of how difficult and pricey the work could be, officials hired architecture and design firm Gensler, which got its start in San Francisco, to analyze the feasibility of conversions throughout downtown. Gensler identified a pocket of the area where properties seemed suitable, so the government targeted financial and other incentives there, encouraging developers to build the residential foundation of a new community.

Calgary has so far approved about one-quarter of the Greater Downtown Plan’s projected expenditures for about $184 million.

Of the initial outlays, about 40% will help fund office conversions. Each project gets $54 per square foot, up to about $7.2 million without further review from the City Council — two projects have exceeded that, with one scheduled to get about $11 million. To date, five conversions have been approved to create 707 units of housing. The remaining 60% of the approved money will fund major upgrades to local arts venues and revitalize public spaces to make the downtown area more comfortable and attractive to visitors and residents, and to stimulate economic activity.

Before the government’s funding commitment, the projects’ developers found it “difficult to get financing,” said Thom Mahler, director of downtown strategy for Calgary. With the financial incentive, “their pro forma worked,” he said, referring to a document that lays out financial viability.

The money made it possible for developer Peoplefirst to offer 40% of its project’s units at 20% below the current market value, said founder and managing director Maxim Olshevsky. It also gave them the financial breathing room to install balconies and build apartments with no fewer than two bedrooms, rather than cramming more, smaller units in to increase overall rent revenue. The larger units could give families a foothold in the new community — Olshevsky said he wanted to build the kinds of homes he wished he’d had as a teenager, upon immigrating to Calgary from Ukraine.

“My whole family lived in a two-bedroom apartment because we couldn’t get a three-bedroom that we could afford,” he said, “so I slept on the couch.”

The government also sped up the timetables for these projects, in part by waiving one of the major construction permits that can take months to procure. To further quicken things, a new committee worked directly with developers to help them satisfy strict building requirements, which can be difficult for projects that shift a structure’s use. All of this amounts to major savings for developers, Olshevsky said.

“So there’s no delay — you’re having a conversation with a decision maker who can get it approved, or tell you, ‘OK, you’re trying something too creative here, do it like this,’” Olshevsky said. “That’s huge.”

Thanks to the help, Olshevsky hopes the project — offering 112 housing units, with ground-floor retail and co-working spaces on the second story — will be finished by October 2023, with all units leased by the end of that year.

The project’s total estimated “hard costs,” or materials plus labor, came out to $131,020 per residential unit. After including “soft costs” — things like planning and management, or developer overhead — the price was equal to $177,670. That omits the cost to buy the building.

By comparison, the price per residential unit for 100 Van Ness in San Francisco was $311,000, including only hard costs, said Tim Vrabel, principal and chief financial officer for developer Emerald Fund. Those costs would be much higher in today’s market, he said. He did not provide soft costs, which he said were “highly variable, project to project” and might be equivalent to 40% to 70% of hard costs, depending on how the developer chose to satisfy the city’s affordable housing requirements.

The cost of conversion depends on the target building, which must fit many criteria for a project to be worth doing.

Newer and high-end office buildings are generally not suitable for two big reasons: They’re still in demand, leaving little financial incentive to convert them to homes. And they tend to have bigger footprints, with expansive floors that are difficult to separate into apartments with comfortable, attractive layouts.

Instead, older and lower-end buildings are best. But even then, the question is not whether one is largely empty — as many in San Francisco’s downtown are — but whether floors are still leased to commercial tenants.

“What if they find an office building that’s 87% leased for the next 10 years? What do you do with that?” said Trey Clark, chief investment officer for Vanke US, a real estate investment company.

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The complexities of the S.F. market

Every conversion is a major undertaking, partly because no two are the same.

Living spaces need access to light and fresh air, which might call for installing ventilation systems, replacing the exterior so that previously sealed windows can open, or even carving away sections of the building to improve the design. Plumbing and electrical systems must reroute from large, congregate areas to each new apartment or condo. With the change in use, an older building may suddenly need major seismic upgrades or fire safety systems. Elevators or stairs may need to be built, or ripped out and relocated. Every alteration bumps up the price tag.

“There’s a thousand things to analyze,” said Michael Covarrubias, chairman and CEO of TMG Partners, a Bay Area developer with experience in conversions. And new design obstacles can surface after builders tear into the structure. “There can be a surprise a minute,” he said, increasing costs.

In buildings more amenable to conversions, construction is generally faster and per-unit costs are about 30% lower than demolishing the structure and building apartments from the ground up, according to research by Emil Malizia, a professor specializing in real estate development at the University of North Carolina at Chapel Hill.

About 25% to 30% of the hundreds of buildings that Gensler has analyzed across North America have made good candidates for conversion, a spokesperson said in June. And San Francisco’s downtown has buildings that could work, said Manan Shah, principal at the company’s Oakland office.

“It’s a pretty mixed market,” Shah said. “A lot of historic buildings, a lot of development that happened in the 1970s, ’80s, ’90s.”

Elevated construction costs have helped bog down real estate development in the city. And with office property generally more valuable than residential, developers are hesitant to do conversions and take a potential net financial loss.

That’s where the government could tip the scales, some say.

Conversions would be subject to the city’s affordable housing laws, which require that developers of large projects either pay a fee or incur long-term costs by setting aside some apartments for tenants in low income brackets. A project that included affordable housing on site would rent about one-fifth of its units to households earning 55% to 110% of the local median income, which is $97,000 for someone living alone.

Maybe the city could cut that unit requirement in half, said Forgan, of SCB architects. A milder reduction helped the numbers work for the 100 Van Ness project.

Real estate experts said the city could make financing conversions easier by reducing impact fees or giving developers more time to pay them. Or the city could directly contribute money, like Calgary did.

Also, like Calgary, San Francisco’s government could waive certain permits and work directly with builders to clear bureaucratic hurdles quickly. Or it could exempt conversions from “discretionary review,” said Clark of Vanke, a process that lets officials and members of the public challenge aspects of the project, delaying it and costing the developer money. Conversions could also draw less objection than new construction in established neighborhoods.

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No coming back from office conversions

As San Francisco’s downtown has limped along, the idea of converting buildings there to housing has remained resilient and contagious, shared among developers and frequently surfacing in news stories.

In fact, Forgan recently fielded an inquiry from Emerald Fund about an office property fresh on the market.

“Hey, we’re trying to figure out if this building makes sense for residential conversion,” Forgan’s contact told him. Some quick math revealed that the numbers weren’t good enough. When asked if government interventions could make conversions worth Emerald Fund’s while, President Marc Babsin said, “Any little bit helps.”

San Francisco officials are weighing whether to help conversions happen — but not just to create new housing. If vacant downtown buildings, instead, received industries that diversified the local economy, it could guard against a repeat of what happened during the pandemic: An overreliance on tech and other highly professionalized workforces crippled the area when they departed, in what could be an early step toward citywide financial downturn.

“Say, for example, we pursued conversions from office to lab space, or to light manufacturing,” said Jeff Cretan, spokesperson for Mayor London Breed. “Because San Francisco is situated as an economic center, in a technology-rich, university-rich area, there could be alternatives to what happened in Calgary.”

And if the goal were to produce homes downtown, it might be better to identify approved office projects that haven’t begun and let them become housing instead, said Rich Hillis, director of the San Francisco Planning Department.

“Once an office is converted, there is no converting it back,” Gloria Chan, spokesperson for the Office of Economic and Workforce Development, cautioned in an email. “Our Economic Core is the only part of the city where we are allowed to have offices and moving away from this too prematurely can have implications that include the loss of business and the revenue that goes with them.”

To help officials weigh the many ideas to save downtown, the office is commissioning studies on the pandemic’s local impacts, shifts in key industries, and how San Francisco might compete with other cities to attract and retain businesses, Chan said. The office is scheduled to spend $64.2 million over the next two years on citywide pandemic recovery efforts that include helping businesses, holding recurring events downtown and other efforts to spur foot traffic.

If downtown received more housing, it might help San Francisco satisfy the state’s mandate to build more than 82,000 housing units by 2030.

But tenant advocates have been hesitant to say that the government should help market-rate developers build homes for high earners. New policies should result in housing that’s permanently set aside for lower-income tenants, said Joseph Smooke, community organizer with the Race Equity in All Planning Coalition, which advocates for building affordable housing.

“We’ve got to deal with reality. We need affordable housing, and the market’s not producing it,” Smooke said. “It needs to come from the city really being innovative and bold.”

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Growing a new community

Back in Calgary in late September, a building that was formerly the headquarters for Dome Petroleum finished its transformation into housing. Though not officially part of the Greater Downtown Plan, the Neoma project falls within its focus area and will help a new community grow there.

“Now there’s 82 apartment units, family shelter, supports and amenities in the building that was once mostly cubicles,” tweeted developer HomeSpace Society.

Other Twitter users were generally jubilant. One summed up a widespread sentiment: “Congratulations! This is such a great project. Hope it catches on in other cities.”

Noah Arroyo is The San Francisco Chronicle’s SFNext lead reporter. Email: noah.arroyo@sfchronicle.com

Article source: https://www.sfchronicle.com/sf/article/empty-offices-housing-17510576.php

The original mansion at 401 El Cerrito Ave. wasn’t what we see now. In fact, it wasn’t even located in the same spot. According to real estate writer Bradley Inman, cattle rancher William Henry Howard built the home in 1878. The next owner was silver baron Charles Frederick Crocker, whose family eventually sold to Burlingame contractor Charles Lundgren. 

As Inman wrote, Lundgren “physically moved the home a quarter mile away to El Cerrito Street in 1915. The relocation was to take advantage of the lush landscaping and the creek on El Cerrito Street. Hailed as an engineering achievement, the house move was written up in Popular Mechanics magazine.” 

In the late 1920s, a fire seriously damaged the mansion. Its next owner, George Hearst — the eldest son of William Randolph Hearst — commissioned Julia Morgan to re-envision the home in the style of the presidential White House in 1930. 

George Hearst clearly sought Morgan’s expertise in building the Western White House because of her work on the similarly opulent Hearst Castle. Both of these startlingly over-the-top mansions represented a departure from Morgan’s signature style of elevated Craftsman-inspired homes composed of natural materials like wood and stone.

Nowadays, the Western White House is a 25,00-square-foot, 24-room mansion standing on almost 3 acres of land at 401 El Cerrito Ave. Its Georgian Colonial design echoes Washington’s White House, as do its cherry trees and its Oval Office-like library. 

Inside, there’s an abundance of marble and silk. According to Inman’s 1995 profile, the home’s four floors are served by both dramatic staircases and an elevator. Hanging from the ceilings are three cut-glass chandeliers, at least one of which is purportedly a Waterford, Inman wrote. Morgan even cut a trap door in the third floor above the formal dining room so that workers could raise and lower the chandelier in order to clean it. The latest real estate listing shows the home has 11 bedrooms, 10 full bathrooms and four half-bathrooms.

While the latest listing doesn’t detail any potential changes to the interior, it does detail a thoroughly modern exterior life, including, “the pool, bathhouse, gazebo solar array.”

Hearst eventually sold the Western White House without ever having lived in it. “According to an old newspaper account in the San Mateo Times, John and Yoko Lennon intended to buy the house in the early 1970s but they backed out of the deal at the last minute,” wrote Inman.

Though the history here is impressive, the mansion is no time capsule. The kitchen is very much an updated affair, as are the luxurious bathrooms. There’s also a solar heating system. 

The home listed for $25 million in late October of 2021. While waiting for its next owner, it suffered multiple price cuts, finally selling early this September for $15 million. Compass agent Alex Buljan, who represented the buyer in this transaction, didn’t find such a long stint on the market unusual: “The property, because of its size and significance, required a buyer willing to put time, effort and capital into preserving its rich history.”

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert

Article source: https://www.sfgate.com/local/article/western-white-house-sells-low-17487411.php