Introduction
Back in September 2005, I took a stab at reviewing the major developments South of Market St. (SOMA). It was my first attempt to convey the magnitude of how the South Beach, Rincon Hill, Transbay, and Mission Bay neighborhoods are being transformed. Since that time I have devoted many hours of research to that area and have entered into negotiations on behalf of clients for specific units. Despite being better informed today, two years later, I have a continuing sense of being overwhelmed due to the number and diversity of existing developments – not to mention those in construction and on the planning boards.

I am convinced that I will continue to feel overwhelmed into the future. I see no let up in South of Market developments. This Pulse is an attempt to provide some clarity for my clients and associates. It is only a start.

Lots of Choices
Look at the attached maps. They are color-coded to help you understand the sequencing of the developments. The maps include only major buildings, which means that many smaller developments are not shown. Hence, buyers are facing even more opportunities than those depicted. It is particularly daunting for a buyer who lives in Saratoga, Marin, East Bay or someplace other than in the city and who wants a place in San Francisco. How does one make sense of all this?

Above
Below

I always start at the same place with my buyer clients. I ask them to draw an imaginary horizontal line across an imaginary piece of paper. Those issues or items above the line are must haves; they are non-negotiable. Those items below the line are important but ones that the buyer can live without, such as deeded parking, views, outdoor space, walking distance to a park, restaurants, washer/dryer in unit, flat block, minimum bedroom/bath configuration, budget, etc.

This Above/Below the Line exercise evolves over time for each buyer as he/she reviews the possibilities and becomes more educated about the opportunities and the competitive landscape. This exercise also becomes a communication shorthand between partners and between the buyer(s) and myself. What may start out being above the line in the beginning of the process may end up below the line as time goes on. What is important is the awareness this creates which helps clarify the critical issues and the importance of each issue.

My favorite anecdote on this subject is about Nancy. A couple of years ago, she and her soon-to-be husband were looking for a two-bedroom unit on the north side of town. They were looking at small buildings where a washer/dryer was often in the basement/garage as well as in newer buildings where a washer/dryer was in the unit. One of our telephone conversations went something like this: “Nancy, is the washer/dryer above or below the line?” No answer. I repeated the question. No answer. “Nancy, are you there?” “Yes,” she said. “Is the washer/dryer above or below the line?” I asked. No answer. “Nancy, is it above or below the line?” She finally said, “It’s on the line!”

Awareness of what is really important is a very personal issue. The question is not “is this a valuable feature?” but “is it a valuable feature to me based on what is meaningful for my needs?”

I was amused by this, but then realized that this was a major struggle for her and that she had not yet made a decision about its importance. The Above/Below the Line exercise helped her to focus on the relative importance of each issue. But it wasn’t easy. In the end, Nancy ended up with a washer/dryer in her new condo, but it was a below-the-line item.

Which Building?
I also use the Above/Below the Line exercise to help clients decide where they want to live before they actually decide on what they want in a specific unit. To make this feasible, it helps to have a good grasp of the potential options, which is something I make a point of having and the reason for the attached maps. Before you go shopping, even for real estate, it is important to know what you are shopping for. Shopping is a different exercise for men and women, and whether you are a man or a woman, an experienced and knowledgeable guide is very important. It helps to know both the terrain and the traveler. Case in point:     

My clients will tell you that before we go looking for a building, we have a therapy session (their term, not mine) to determine what they really want. The good news and the bad news is that there are many options.

There are 40+ buildings on the two maps, plus a lot of smaller buildings and buildings still on the drawing boards that are not shown on either map.

Let’s Talk About Views
Not everyone has includes the view as an above-the-line item, but those who do need to do more homework than those who don’t. The future value of a view unit depends to a significant extent on the continuation of that view. In a dynamic area such as SOMA, views today are not necessarily the same as views that will exist tomorrow; they can depreciate. Those who purchased units on the south side of 355 First St. (The Metropolitan) did so when One Rincon Hill (425 First St.) did not exist, but it was on the planning boards. Those who purchase on the north side of One Rincon Hill should be mindful of the Turnberry Tower (45 Lansing), which is about to start construction. The Turnberry Tower is also likely to affect the views of some buyers who have already closed on units on the south side of 50 Lansing. So it goes.

If it is views that you want, and you have access to information about current and planned projects that affect views, then you can draw a line through many of the buildings on the maps and eliminate them from a search, for some of these buildings have no view units. That makes it easier. If views are below the line for you, then all of the buildings can be options.

Other Key Issues
Location and general building amenities (we are still not even talking about specific unit amenities yet) are above/below the line issues as well. I have some clients who will not consider a building without a swimming pool, others who demand air conditioning and still others who must have deeded parking, a location close to a park to walk the dog, etc.

Though the sheer number of the buildings available may be initially overwhelming, it can be cut down to size considerably by focusing on the issues that are most important – to you – for now and later.

So when you find a map revealing current and proposed projects, it is not only the obvious impact on views that you want to know, but also what building amenities are planned that you may want or may be competing with down the road.

Timing
There are 14 buildings shown on the two maps that are completed and ready for move in. This is great for those who want a home now. They can buy and close in 30 days and actually inspect the unit to see what they are getting, including layout, finishes and existing views. They can also ask their realtor to provide them with recent comparable sales so that they can gain some understanding as to the value of the price they are paying in today’s market – something that is considerably more difficult when faced with a take-it-or-leave-it price from a developer on a new unit that will be ready in a new as yet to-be-determined market.

For other buyers, a yet-to-be-completed building is more attractive because it fits into their need for a delayed close, whether it is 3, 6, 9, 12 or 18 months into the future. Some of my clients are planning ahead for when the kids leave home, retirement kicks in, funds are available, a lifestyle change takes place or for other reasons. These people are keeping an eye on the future and on the unfolding of the development landscape.

Summing Up
One thing a buyer can’t do, in my opinion, is time the market. I have some people tell me that they are sitting on the sidelines waiting for supply to over power demand and drive the prices down. I don’t think you can time the stock market, unless perhaps you are a pro (and even then…), and I don’t think it makes sense to attempt it in the San Francisco residential market.

What is clear is that average annual condominium prices have appreciated in San Francisco at 7%, and the developer cost of building is not going down. While it is not realistic to time the market, taking advantage of available information and an expert guide means that you can be agile and take advantage of the opportunities that are meaningful to your personal needs. For those who are well informed, it is always a good market in their time frame.

I talked about being aware of how existing views may be obstructed by new buildings, and I gave a few examples of how this has already taken place. A more subtle issue is the impact of the reduced view on values of all the units in a building when a new building is constructed. If one subscribes to the thesis that there is a finite amount of capital available for San Francisco condominium purchases, making allowances for normal economic growth, the growth of the wealthy sector and Baby Boomers, then the value of some of the existing condominiums just might be diminished with the addition of newer, better designed condominiums. Stay tuned.

The scope and pace of development in SOMA is exciting and overwhelming. Having a good guide, whether it is me or someone else, is essential to making an educated decision in the midst of so many opportunities. Making a wrong decision because of lack of knowledge can be very costly. Paying several hundred thousand dollars for a view today, only to have it obstructed in a few years, is not a smart investment. Such an error can be avoided, certainly mitigated, with research and knowledge.

Call me if I can be of service.