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San Francisco median home price hits plateau?

Fri, 30 Aug 2013 06:19:28 +0000

CIM Expands Bay Area Office Holdings with Three Recent Purchases

Fri, 26 Apr 2013 11:47:01 +0000

SAN FRANCISCO—CIM Group has purchased 330 Townsend in San Francisco for an undisclosed sun. The 98 percent-leased, 60,000-sq.-ft. office building is located in the South of Market District, which has one of the lowest office vacancy rates in the city.

Through the West SoMa Community Plan, 330 Townsend is zoned for additional development. CIM has not said yet whether it will add to the building.

This purchase is one of several recent buys for CIM, which has been in the Greater Bay Area since 2001. The real estate and infrastructure investment firm also recently purchased 260 Townsend, a 100 percent occupied, class-A office building, located one block from 330 Townsend. Additionally, CIM purchased 211 Main St., also a fully-occupied, class-A building just a couple blocks from the other buys.

In total CIM owns 2.7 million sq. ft. of class-A office property in the Bay Area as well as two hotels.

Article source: http://nreionline.com/investment/cim-expands-bay-area-office-holdings-three-recent-purchases

CIM Expands Bay Area Office Holdings with 3 Recent Purchases

Thu, 25 Apr 2013 17:22:57 +0000

Through the West SoMa Community Plan, 330 Townsend is zoned for additional development. CIM has not said yet whether it will add to the building.

In total CIM owns 2.7 million sq. ft. of class-A office property in the Bay Area as well as two hotels.

Article source: http://nreionline.com/san-francisco/cim-expands-bay-area-office-holdings-3-recent-purchases

S.F. supervisors back micro-apartments

Fri, 23 Nov 2012 15:23:14 +0000

The San Francisco Board of Supervisors voted Tuesday to give pint-size apartments a try, approving legislation that would allow for the construction of hundreds of 220-square-foot residential units.

Up to two people will be allowed to live in the micro-apartments, which legislation sponsor Supervisor Scott Wiener said would help those who want to live alone but can’t afford most of the studio apartments on the market.

“To confront San Francisco’s rising housing affordability crisis, we must be creative and flexible,” Wiener said in a statement. “Allowing the construction of these units is one tool to alleviate the pressure that is making vacancies scarce and driving rental prices out of the reach of many who wish to live here.”

But for the legislation to pass, Wiener had to agree to cap the number of micro-apartments at 375. Under the legislation, the City Planning Department will analyze the effects of the new units once 325 of them are built.

“Family-sized housing is important and its development should be encouraged,” Wiener said. “But many – including seniors, students and transition age youth – do not need as much space or cannot afford it. These units will be a viable alternative for those who don’t want to live with roommates.”

The SoMa neighborhood and other densely populated city locations would be the likely location for the new units, which include a living room, kitchen and bathroom. Supervisor Jane Kim, who represents SoMa, said that neighborhood’s population could increase by 32 percent as a result of unlimited micro-apartments.

The cap seemed to satisfy skeptics who say that micro-units are not the solution to the city’s housing problem. Supervisor David Campos, who supported the measure, said he visited one of the proposed units and was struck by how expensive rent would be for such a small space.

Concern about rents

The micro-units are estimated to go for $1,300 to $1,500 a month. The average studio apartment in San Francisco rents at $2,075 a month, according to real estate service RealFacts.

“It’s not a lot of space for $1,500,” Campos said, adding that he was concerned it could raise rents across the city. “If 220 square feet is going to rent for $1,500, what does that do for the rest of the places in San Francisco?”

Supervisor John Avalos was the lone vote against the proposal, arguing that the city should be more focused on keeping families from moving.

“This doesn’t make a lot of sense for the San Francisco I know,” he said.

Mayor Ed Lee, who still must sign the measure, told reporters after his monthly question-time session before the board that he hadn’t taken a position on micro-apartments yet.

“I’m always concerned whenever people are changing the standards, but I do think there might be good policy reasons,” he said.

When the Planning Commission reluctantly approved a cap on the number of units last week, some commissioners worried that limitations would confuse developers. But tenant and affordable housing advocates said the cap was crucial to their support.

“We still have concerns, but this way, the impact would be softened if those problems came to fruition,” said Sara Shortt, executive director of the Housing Rights Committee of San Francisco.

Looking at tenants

Ted Gullickson, director of the San Francisco Tenants Union, said he hoped the Planning Department study conducted before the cap is reached would shed light on who is moving into the units.

“If they become urban crash pads for high-tech employees, then we fear they could have a gentrifying effect on the neighborhoods as they get built,” he said. “We do have a strong need for family-size housing as well as affordable housing, and we have limited development sites in San Francisco.”

Neal J. Riley is a San Francisco staff writer. E-mail: nriley@sfchronicle.com Twitter: @realdealneal

Article source: http://www.sfgate.com/bayarea/article/S-F-supervisors-back-micro-apartments-4055493.php

Seasonal slowdown? Not in the Bay Area

Fri, 26 Oct 2012 01:34:18 +0000

Real estate in some parts of the nation experiences the malaise of fall, buyers cooled off by chilly weather and shorter days, distracted by the impending holiday season. But not the Bay Area. This September, Bay Area property sales made improvements in three key areas: days on the market (DOM); listing prices; and, most importantly of all, sales prices.

ZipRealty recently released September 2012 data in comparison with 2011 for each county in the Bay Area. And that data shows a very hot market, with no sign of seasonal slowdown whatsoever.

Want some local proof? Here are three San Francisco listings in which the sellers ask a million dollars or more above what they paid for them. In only one case, this first example, has the current seller been in the home more than 2 years.

Number one, Lower Pac Heights

On Buchannan Street in Lower Pac Heights, a splendid Victorian 5 bedroom offers evidence. Public records show it sold for $1,550,000 in 2005. Now it’s listed at $2,595,000—a substantial increase indeed, intimating the home rose over $100K a year in value every year since 2005.

Number two, SoMa

Or how about the first ever re-sell of an Infinity Tower duplex? This unit at 338 Spear offers 3 bed, 3 baths, jaw-dropping views, and a price to match. After having sold for $1,760,000 2 years ago, this property is now listed at $3,200,000- an increase of over 80% in just 2 years.

Number three, Cow Hollow

Or, this Cow Hollow listing, 3 bedrooms, easy walk to Presidio. Yes, the official write up hints at extensive remodeling (most of it in white, per photos). But that remodeling alone wouldn’t justify new price—we also need that crazy Bay Area real estate magic: according to sales history, the property sold $2,200,000 in 2010. Now, it’s $4,750,000.

So we ask you, readers, what’s next? Low inventory forcing prices up in every corner of the Bay, no matter what the season… how much higher can they go?

Article source: http://blog.sfgate.com/ontheblock/2012/10/25/seasonal-slowdown-not-in-the-bay-area/

SF’s most popular neighborhoods fetch dear rent indeed

Thu, 27 Sep 2012 11:57:40 +0000

Last week, On the Block’s Jenny Pisillo asked if it isn’t cheaper these days to buy in the Bay Area than rent. Today, we revisit the topic. More proof that the rental market in SF is crazy? Trulia’s Rent Monitor report offers plenty.

First, a smattering of available rentals in popular SF neighborhoods.

Lower Pac Heights

How about this: a 1 bed, 1 bath apartment on Gough in the lower Pac Heights area for $3,100 a month? Wait: isn’t that the price for the actual Pac Heights, like where Danielle Steel lives? Yes, this unit allows pets and yes, boasts not 1 but 2 walk-in closets you could potentially house roommates in; but still: $3,100 a month for a one bedroom is steep.

SoMa

The SoMa is all the rage now, thanks to tech boom 2.0, aided also by Twitter setting up camp in a less than savory South of Market area in exchange for a tax break. Suddenly the ‘loin is looking more tender and folks are shelling out what used to be Upper-Fillmore prices for anything near the “Multimedia Gulch.”

Example? Here’s a 2 bed, 2 bath 1,200 square foot loft on Sumner. Price: $3,800 a month.

South Beach

Remember the days when South Beach was little more than industrial buildings and tumbleweeds? Now South Beach is hailed as “up and coming,” though by the looks of this listing, it has fully arrived. Here we have a 2 bed, 2 bath condo on Main Street for $6,800 a month.

Russian Hill

The stately neighborhood only gets more so, it seems. Rents here, always dear, have now reached rather astounding levels, such as evidenced by this 3 bed, 2 bath single-family home (address undisclosed but there’s a Van Ness address listed on one of the photos in the listing linked here) for $11,000 per month.

If these rents seem (still, again, once more!) higher than ever, that’s because they are, according to Trulia’s study, The Trulia Price Monitor and the Trulia Rent Monitor adjust for the changing mix of listed homes to accurately describe and predict rents. Says Trulia: “Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do.”

Highlights from the report

In August, asking prices rose 2.3% year over year, the largest annual jump reported yet by the Trulia Price Monitor and the largest year-over-year increases since before the recession. Excluding foreclosures, asking prices rose nationally 3.8% year over year. The month-over-month increase of 0.8% was the seventh consecutive monthly increase.

Among the largest 25 rental markets, rents rose the most in Houston andSeattle, where they climbed more than 10% year over year in August. Rents are no longer rising so quickly in Denver, San Francisco, Miami, Oakland and Boston, but that may not be much comfot: these hot rental markets are still seeing annual rent increases of 8% or more.

SF’s most popular ‘nabes

In a city with such an uber-popular rental market, which neighborhoods get the most attention? Trulia tracks the most searched for neighborhoods on its site, and here they are.

Can the madness continue?

What do you say, readers? The holidays and general real estate slow down are coming. Are lower rents– or at least an end to higher ones– coming too?

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: http://blog.sfgate.com/ontheblock/2012/09/27/sfs-most-popular-neighborhoods-fetch-dear-rent-indeed/

Kilroy Realty Corporation Acquires Value-Add Opportunities in Two West Coast …

Fri, 27 Jul 2012 17:15:29 +0000

LOS ANGELES, Jul 26, 2012 (BUSINESS WIRE) –
Kilroy Realty Corporation

/quotes/zigman/171049/quotes/nls/krc KRC
+1.05%

continued its successful pursuit
of value-add office building opportunities in strongly growing West
Coast commercial centers, acquiring a rare development site on Brannan
Street in San Francisco’s SOMA district and a Class A office tower in
greater Seattle’s prestigious Bellevue community.

KRC said the development site transaction, which closed last week,
represents a unique opportunity to build a state-of the-art office
property amid one of downtown San Francisco’s most popular technology
and media corridors at a total investment cost notably below recent
prices paid by other purchasers for similar assets.

In the Seattle transaction, which closed this week, the company said it
has purchased a premium quality, multi-tenant office tower, located in a
popular high-density submarket that is now experiencing strong demand
growth, at a price comfortably below replacement cost. KRC said it plans
to significantly enhance the property with a capital improvement and
modernization program that will support both property specific and
market-based rental rate growth.

Brannan Street Development Site Details. KRC paid
approximately $18.5 million for the 0.82-acre development site, located
at 329 Brannan Street in San Francisco’s SOMA district. The site is
zoned for approximately 5.0 FAR coverage and the company intends to
build a six-level office building designed to appeal to the area’s
growing community of technology and media companies. It is KRC’s second
ground-up development project in Northern California.

The new building will be LEED Gold certified. Its design will reflect
the dominant brick and timber character of the neighborhood, similar to
properties at 301 and 250 Brannan Street, which KRC also owns and which
are both 100% leased. The new building’s design will incorporate open
floor plates, concrete floors, large windows to capture natural light,
and multiple common areas–all features popular with the area’s creative
workforce.

KRC expects to complete entitlements for the development site by
year-end 2013 and complete the building in 2015. The company estimates
the total cost of the project, including land, will be approximately $80
million.

Seattle High-Rise Acquisition Details. KRC paid
approximately $186 million for the 417,000 square-foot, 24-story, Class
A office tower known as Skyline Tower located in Bellevue, Washington.
The purchase price includes the assumption of an in-place mortgage of
approximately $84 million. The loan bears interest at a rate of 6.37%
and matures on April 1, 2013.

Skyline Tower is a LEED Silver certified property featuring spectacular
views of the Cascade and Olympic Mountains and Mount Rainier, and sits
in close proximity to Bellevue’s affluent residential and retail
neighborhoods. The property, which is two blocks from KRC’s Key Center
office tower, is currently 92% leased to a diverse tenant base that
includes technology companies Expedia and Valve Corporation.

About Kilroy Realty Corporation. Kilroy Realty
Corporation, a member of the SP Small Cap 600 Index, is a real estate
investment trust active in premier office and industrial submarkets
along the West Coast. For over 60 years, the company has owned,
developed, acquired and managed real estate assets, consisting primarily
of Class A real estate properties in the coastal regions of Los Angeles,
Orange County, San Diego, greater Seattle and the San Francisco Bay
Area. At March 31, 2012, the company owned 11.8 million rentable square
feet of commercial office space and 3.4 million rentable square feet of
industrial space. More information is available at
http://www.kilroyrealty.com .

Forward Looking Statements. This press release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are based
on our current expectations, beliefs and assumptions, and are not
guarantees of future performance, results or events. Forward-looking
statements are inherently subject to uncertainties, risks, changes in
circumstances, trends and factors that are difficult to predict, many of
which are outside of our control. Accordingly, actual performance,
results and events may vary materially from those indicated in
forward-looking statements, and you should not rely on forward-looking
statements as predictions of future performance, results or events.
Numerous factors could cause actual future performance, results and
events to differ materially from those indicated in forward-looking
statements, including, among others: risks associated with investment in
real estate assets, which are illiquid, and with trends in the real
estate industry; competitive market conditions; the ability to complete
potential acquisitions and dispositions on announced terms; the ability
to successfully operate acquired properties; the availability of cash
for debt service and exposure of risk of default under debt obligations;
government regulations that may affect development, redevelopment and
use of properties; and the ability to successfully complete development
and redevelopment projects on schedule and within budgeted amounts.
These factors are not exhaustive. For a discussion of additional risk
factors that could adversely affect our business and financial
performance, see the factors included under the caption “Risk Factors”
in our annual report on Form 10-K for the year ended December 31, 2011,
quarterly report on Form 10-Q for the quarter ended March 31, 2012, and
our other filings with the Securities and Exchange Commission. All
forward-looking statements are based on currently available information
and speak only as of the date on which they are made. We assumes no
obligation to update any forward-looking statement made in this press
release that becomes untrue because of subsequent events, new
information or otherwise, except to the extent it is required to do so
in connection with ongoing requirements under Federal securities laws.

SOURCE: Kilroy Realty Corporation


        Kilroy Realty Corporation
        Tyler H. Rose
        Executive Vice President
        and Chief Financial Officer
        310-481-8484
        or
        Michelle Ngo
        Vice President
        and Treasurer
        310-481-8581

/quotes/zigman/171049/quotes/nls/krc

Add to portfolio

KRC

Article source: http://www.marketwatch.com/story/kilroy-realty-corporation-acquires-value-add-opportunities-in-two-west-coast-tech-and-media-centers-2012-07-26

Police Seeking Missing San Francisco Man Last Seen in SOMA

Tue, 26 Jun 2012 20:15:03 +0000

UPDATE: Evan Flanary, phone his mother to let her know he is safe and staying with a friend. He had turned off his phone.

——————————

Police are looking for a missing San Francisco man who was last seen Tuesday in the South of Market district, according to reports.

Evan Flanary, 22, was last seen on his way to meet a “stranger from a social phone app contact,” according to his family.

He is 6-foot 1, 160 lbs, has blonde hair and blue eyes, and was last seen wearing blue jeans and a gray hooded sweatshirt, according to the San Francisco Appeal online newspaper.

Flanary has no history of medical or psychological conditions and was not on any form of medication, the newspaper reported.

His family is asking for any and all help from the community.

Copyright NBC Owned Television Stations

Article source: http://www.nbcbayarea.com/news/local/Police-Seeking-Missing-San-Francisco-Man-Last-Seen-in-SOMA-160317475.html

The Culture of Foreclosure Auctions

Sat, 05 May 2012 20:02:05 +0000

It’s all about the Benjamin’s, baby.In this week’s feature story, “The Dispossessed,” several real estate investors who attended a foreclosure auction declined to give their names. Real estate investors who buy foreclosed property after all, don’t have the best public reputation — one homeowner interviewed for the story called them “vultures.” To the investors, though, they are simply business people playing the market. But as in many sectors of society, all it takes is a handful of deviants to ruin the credibility for all.

Most foreclosure auction attendees are house-flippers who fix up their buys then put them back on the market — the increased property value comes from renovations, not market shifts, and the profits are modest on a per-house basis. The real profits come from quantity, and not many investors have the stomach for that kind of grind. Consequently, the auctions draw a limited group of regulars. Naturally, the regulars turn from rivals to acquaintances over time.

Picture the scenario: Twice a week, every week, for three months, John, Mike, and Sally see each other at the auction. They all do their homework and each have a good eye for undervalued property. So twice a week, every week, for three months, John, Mike, and Harry target the same undervalued properties. One day they all bid on a $350,000 condo in SOMA. John holds out the longest, and he gets it for $475,000. Another day, a $625,000 two-story in Pacific Heights, and Sally gets it for $780,000. And so on. Eventually they realize it makes more sense to just team up, keep the prices down, and split the bigger profits on each of the properties. Why split the goods three ways at market price when you can split it three ways at foreclosure price?

When some new investor, Bill, comes along, John, Mike, and Sally approach him. They won’t necessarily tell Bill to not bid. They won’t necessarily invite Bill into the crew. Most likely, they’ll offer Bill some money to pass on a certain property. Bill is new, and he’s just been cornered by three veterans who are offering to pay him to do nothing. So Bill accepts. And now Bill is part of the conspiracy, and will be arrested along with the others, because the FBI cameras or agents were watching the whole time.

The collusion violates the Sherman Anti-Trust Act — which outlaws monopolistic business practices — and the maximum penalty is 10 years in prison and a $1 million fine (or as much as double the profit gained from the crime).

Follow us on Twitter at @TheSnitchSF and @SFWeekly

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Article source: http://blogs.sfweekly.com/thesnitch/2012/05/foreclosure_auction_conspiracy.php

Social Media Fuels SoMa Rental Boom — But Will It Be San Francisco’s Next Big …

Mon, 26 Dec 2011 22:14:23 +0000

SAN FRANCISCO — Walk through San Francisco’s bustling SoMa neighborhood and you’d be forgiven for thinking that the economic roller coaster of the last 12 years was nothing more than a bad dream. Both the dot com boom’s epic implosion and the misery of the Great Recession vanish behind a chattering group of enthusiastic engineers waiting in line for artisanal grilled cheese sandwiches.

At times, it seems like there has been steady economic growth in SoMa from the tech explosion of the late 1990s to today’s boom. While the newfound expansion, one based on the seemingly limitless possibilities of social networking, is re-inventing the way people communicate from China to the Carribbean, its beating heart lies in SoMa’s row after row of converted warehouses.

“The high-tech industry is a bright spot in an otherwise gray economic picture. High-tech jobs have grown nearly four times faster than the overall economy during the past 18 months,” a report by real estate services firm Jones Lang LaSalle noted.

Over that same period, tech job growth in San Francisco surged by 16.1 percent — the fastest of any area in the country, according to the report. That’s one and a half times the rate in Silicon Valley during the past year and a half — and growth has been the largest in SoMa. If tech is one of the most resilient parts of the U.S. economy, the strongest part of tech is in SoMa.

(SCROLL DOWN FOR PHOTOS)

These jobs are largely generated by eager young companies champing at the bit to become the next Google or Microsoft, and they all need somewhere to house their employees. This need has led to a hyperactive scramble for office space that seems shocking so soon after an irrationally exuberant real estate market catalyzed the biggest financial collapse since the Great Depression.

In October, the real estate firm Colliers International released a report that found 40 tech companies were looking for approximately two million square feet of office space in San Francisco, primarily in SoMa. Mayor Ed Lee noted that the space they were seeking to fill was “[the] equivalent of nearly four Transamerica Pyramids.”

For a variety of reasons, SoMa has developed into the northern, and most attractive, edge of Silicon Valley. Office spaces in the city’s former warehouse district look like what most tech firms think a tech office should look like — high ceilings, exposed brick walls and open floor plans that encourage collaboration. Not only do these offices fit the platonic ideal for “creative space,” they’re also in close proximity to the homes of the top talent the companies are hoping to attract.

Since its nadir in mid-2010, rents in the hot sections of SoMa have increased by 25 to 30 percent, according to Colin Yasukochi, director of operations at Jones Lang LaSalle, begging the question: Is this the next big bubble? And is it headed for an inevitable burst?

A DIFFERENT KIND OF BOOM

“The current boom is more San Francisco-centric than the one in the ’90s,” said Brady Barbier, associate managing director of Integra Realty Resources, the largest independent commercial real estate valuation and consulting firm in North America. “That one was more engineer-driven, and this one is more centered around social media and ad sales.”

The employees fueling this boom are generally more interested than their code-jockey predecessors in living and working in San Francisco’s vibrant metropolis instead of the South Bay’s sprawling landscape of sleepy suburbs and nondescript office parks.

“The firms that feel strongly about attracting top talent will swallow the pill and buy the expensive space in the city,” said Hessam Nadji, managing director at real estate investment services firm Marcus Millichap.

Once the number of tech firms in SoMa hit a critical mass, movement of more companies into the neighborhood became a self-fulfilling prophecy. “With tech firms, everyone is looking for synergy. They want to be close to each other and share ideas,” Barbier said.

Moving into SoMa’s tight cluster not only affords young companies the opportunity to exchange ideas and dream up collaboration while standing in line for those aforementioned artisanal grilled cheese sandwiches, but also makes poaching talent from competitors significantly easier. Convincing that hotshot project manager to jump ship is considerably easier when his or her new commute would be essentially the same 10-minute bike ride he or she is already making, instead of a 45-minute slog through bumper-to-bumper traffic.

THE FOG CITY’S ALLURE

When a company is looking for space in San Francisco, experts in the commercial real estate community say the company will almost always end up finding something in the city.

“It rarely happens that a company starts looking at SF, decides it’s too expensive and moves out to Walnut Creek,” Barbier said. “If you’re a company that wants to be in SF, chances are you’re going to make it happen.”

Colin Yasukochi of Jones Lang LaSalle agreed. “There are more companies coming into the city than San Francisco companies deciding to go somewhere else,” he said.

Twitter’s threat to leave San Francisco for the thriftier pastures of Brisbane represented a special case — a firm outgrowing its space, just on the cusp of having a strong enough gravitational pull (a la Google, Facebook or Salesforce) to attract top talent no matter where it’s located. For a company like Twitter, moving out of San Francisco carried both risk and reward — on one hand, it wouldn’t have to pay the city millions in payroll taxes on its impending IPO, but on the other hand, it might lose out on gobbling up the brilliant engineer who could otherwise design a “Twitter killer” for one of its competitors. Fortunately for Twitter co-founder Biz Stone and his colleagues, San Francisco officials — panicked over the possibility that Twitter’s departure could spark a mass exodus — handed the micro-blogging powerhouse a massive tax break as an incentive to remain downtown.

San Francisco isn’t Houston; it’s not the type of city where new construction is simple or cheap. As a result, the supply of available office space in SoMa is drying up fast. Vacancy rates along the trendy Second Street corridor are in the single digits.

“It’s beginning to be difficult to find 5,000 feet of creative space in SoMa,” said Tom Owens, founder of New Urban Properties. Hence, landlords of the properties that do become available are able to hike their rents to heretofore unimaginable levels with the confidence that, somewhere out there, a mobile gaming or online coupon company will be more than happy to pay whatever amount is asked.

Real estate firms see this and, since it’s supremely difficult to just create a new building from the ground up, they opt for the next best thing.

As a result, SoMa has seen a spike in the number of firms engaging in what’s called “value-added investing.” Investors take an already-existing property that is unfit for commercial use, renovate it, and then sell it within a few years to a larger firm looking to hold onto it for the longer term. It’s a riskier endeavor than simply renting out an established property and riding out the natural increase in rent that inevitably comes with an improving economy, but in an area eager for new development, it’s virtually the only way to expand the pool of available space.

A year ago, these “value-added investing” projects would have had a much more difficult time finding financing. Now there’s no shortage of backers. “There’s no credit crunch for projects that make sense,” Barbier said.

WILL THE BUBBLE BURST?

Despite surging demand in the market, the recent explosion in prices remains a source of unease.

“As an appraiser, any time you see excessive growth, it just makes you nervous,” said Mark Linne, executive vice president of the real estate valuation services company Appraisal World. “I don’t see rent growth of 25 percent being sustainable.”

Even though it’s unlikely that the current skyrocketing rent growth will continue indefinitely, that doesn’t mean a crash is inevitable, experts say. There’s the strong probability that rents will stabilize at a fairly high level and that many companies will continue to pay them. Others, priced out of this particular market, may move to different parts of the city, such as the Financial District, which is increasingly remodeling floors of its towering office buildings to more closely resemble SoMa’s creative spaces, or may follow Twitter’s example and relocate to the rapidly redeveloping mid-Market area.

If what’s happening in SoMa really is a bubble, the shifting of some development energy to other areas in the city may safely let out enough air for the market to stabilize. On the other hand, if what’s going on is actually just part of a larger social media bubble, then all bets are off.

“Conventional wisdom, and if you look back at history, is that [this market will be] cyclical,” Barbier said. “Combined with the current economic instability, I think this will be a few-year deal, and some of these guys will fall by the wayside, and pricing will come down. I mean, how many online coupon companies do you really need?”

Nadji agreed. “It’s unlikely that what we’re seeing is a development bubble, but it could be a pricing bubble,” he said. “The risk is heavier on the demand side than on the over-building side — meaning what would likely pop the bubble is a lot of these companies failing and not needing real estate.”

Online gaming giant Zynga is considered one of the drivers of the boom, with programs like FarmVille and Mafia Wars cluttering Facebook news feeds for years. Its move into its current Townsend Street headquarters, a building formerly mostly occupied by fellow gaming pioneer Sega, was one of the strongest initial signals of SoMa’s real estate resurgence. Yet Zynga’s long awaited IPO hit the market late last week with a resounding thud — opening at $10 a share, the stock never saw the expected flurry of activity many hoped would drive the price into the stratosphere. Instead, on investor fears of flat growth, the stock has remained just below its IPO price.

Zynga is one of the leading lights of the new tech boom, and a lack of enthusiasm toward its stock may be an ominous sign.

But this isn’t to imply that the newfound growth in the tech sector is necessarily a repeat of the heady days preceding the dot com crash. Today’s companies rest on much firmer footing than those involved in Pets.com’s infamous sock puppet spokesdog moving to the front of the unemployment line. “This current wave is far more grounded than the dot com boom,” Nadji said. “Companies need to prove themselves, and their revenue model, far earlier in the process in order get funding.”

Many real estate investors, still skittish from the sub-prime fiasco in the residential market, also exercise an excess of caution in their investments. “It’s rare for one bubble to follow another when talking about the same asset class,” said Anirban Basu, chief economist for Associated Builders and Contractors. “Once you’ve had one type of bubble burst, people are usually apprehensive about similar types of investments right afterward.”

Even so, there’s a very real possibility that the high cost of office space takes a toll on the fledgling companies driving the current boom. “In San Francisco, we always hear that we can justify these increases in rent because of our location. And I can buy that to a degree. But at the end of the day, there’s only so much a tenant can pay,” Linne said. “If you’re a start-up trying to scrape together money, paying an arm and a leg to rent in SoMa doesn’t make much sense.”

One of the keys to identifying any asset bubble before it bursts, according to Linne, is locating the market distortions that are artificially inflating prices. In this case, the distortion could very well be the idea that if you want to have a successful tech company that attracts top talent, you have to be in this one very small geographic area.

“It’s an ‘Emperor’s New Clothes’ phenomenon — everything is fine as long as everyone believes,” Linne said. “As long as people are reasonable and believe that these values are appropriate, it’s fine. But when tenants start to balk, that’s when the cracks start to appear.”

If the lines for grilled cheese are any indication, there is likely still more than enough of the necessary Kool-Aid to keep everything afloat.

At least for now.

Check out the slideshow below to see some of the hottest office spaces currently available in SoMa:

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Article source: http://www.huffingtonpost.com/2011/12/19/soma-real-estate-bubble_n_1158617.html