Hundreds of Web-savvy startups have sprung up in San Francisco’s oldest buildings in the South of Market district (called “SOMA” for shorthand). So behind that sleek new Apple iPhone whatever-it-does application are a bunch of software developers crowded into a brick building that 100 years ago housed a meat warehouse, a button factory, or maybe a flophouse. Best of all (for those who enjoy irony), that same startup labored, even spent a few grand, to make sure their former warehouse looks nothing like: an office.

Original bricks are a must, according to Hugh Scott and Travis James who help run the technology practice at real estate firm Jones Lang LaSalle. “The funkier the better,” says Scott. This duo have spent the past decade landing homes for startups in the Bay area.

Exposed pipes are another top request. These used to be out of cheap necessity, in buildings where landlords were too stingy to shell out for even ceilings. But now tenants are willing to payfor what used to be done out of thrift. Scott and James have seen several tenants add $15 to $20 a square foot to their costs of moving in by asking that the ceilings be ripped out and the pipes cleaned to get that cheap chic look. For landlords, ceiling-free space is commanding a 10-20% premium.

One highly sought-after space was previously the storage closet for the nightclub below. What’s hipper than having your startup next to a night club? (Hint: the answer rhymes with “hip club”.)

Dogs are another a must-have accessory for today’s startups. This request tends to rule out any buildings owned by real estate investment trusts, which typically put “no pets” clauses in contracts.

Commercial rents in most cities are below 2007 levels. Meanwhile SOMA is commanding a hefty premium. Rents have jumped 35% just in the last two years, with some deals hovering around $50 per square foot — matching rates in Palo Alto’s most desired corridors, including the famous Sand Hill Road.

“Most spaces are seeing upwards of four offers,” says James, before smiling suddenly as a text message comes in and he adds: “We submitted an offer sheet for a place last Wednesday. Heard back yesterday, and now I’m hearing we’ve got just 24 hours to make a decision.” James sprints back and forth between downtown San Francisco and Palo Alto, alternatively finessing newly-picky landlords and networking with venture capitalists in the hopes meeting up and coming startups.

While rents here are soaring, they’re still not near the last bubble’s levels. That could mean this is less of a bubble, or simply reflect new buildings that have sprung up in SOMA. Scott and James aren’t sure. Another intriguing difference this time around: rents might be a leading indicator instead of lagging when it comes to the performance of tech’s all-encompassing NASDAQ stock index. Take a look (rent rates provided by Jones Lang LaSalle):

In the 1999 technology craze, rents trailed gains in the technology index. It’s as if the initial public offerings were happening before startups could even secure space. Then it seems once-optimistic companies got stuck in longer-term leases for a while. The rise and fall of both was swift.

Now it seems the opposite is at work. Rents have been creeping upward as technology stocks have stumbled.

Surely the slow, faltering IPO market is in part to blame. The NASDAQ isn’t yet seeing much action from what’s bubbling in SOMA (Zynga’s lackluster offering is one exception). Last time around the ultimate prize was the IPO. Ten years and Sarbanes Oxley later, IPOs aren’t as desirable or necessary.

Some companies, notably Facebook, Dropbox, and Airbnb, have so far managed to avoid the headaches of going public while still raising IPO-size amounts, from venture capitalists. Social networking tool company Jive landed $120 million in its December IPO. Dropbox meanwhile scored twice that, $250 million, in its private funding round months earlier. If there is froth this time, it isn’t showing up in the NASDAQ.

Landlords are once burned, twice shy from the last bubble-bust cycle. Most are refusing equity if it’s offered, and demanding big security deposits. Negotiations that used to take three weeks are happening in days, as other potential tenants are banging at the doors hoping a deal falls through.

Some highly-desirable properties, such as the building Twitter has plans to move from, have changed hands without even hitting the market. This building is thought to have especially special mojo. The prior tenant, social networking site Bebo, sold to AOL for $850 million in 2008. (Bebo later was a bit of a fire-sale item, going to a private equity shop for $10 million.) Rumor has the space now going to a gaming company.

One swiftly-growing startup, Web security firm CloudFlare, found their building’s main elevator too corporate-feeling. Instead, they’ve redirected visitors to the old and previously unused freight elevator. CloudFlare commissioned three graffiti artists to come into the building at 1 a.m. to create a dramatic elephant mouth that opens and closes as the doors up and shut.

If this is all sounding a bit self-indulgent and bubblicious, Eric Frenkiel of in-memory database startup MemSQL explains it this way: “Our office is a recruiting tool. We can’t offer better work life balance, so the pitch is that this will be a great place to work and live.” MemSQL’s other co-founder, Nikita Shamgunov, takes this quite literally. The company is currently housed in a SOMA loft apartment, and Shamgunov lives on the top landing, six feet from a rack of servers.

Introduction

Community Associations have traditionally encountered problems with renters in their communities. Because renters do not have an ownership interest in their units and the Association, they may feel less invested in the community. This often results in renters failing to (1) comply with the Association’s CC&Rs and/or (2) properly adhere to the Association’s rules and regulations. Associations that have high quantities of renters typically find themselves paying more in enforcement costs compared to those Associations that have smaller renter populations.

As a result of this unfortunate situation, Associations have adopted various forms of rental limitations purporting to preserve the quality of life in their communities and to protect the financial health of their Associations.

Background of Senate Bill 150

The California Association of Realtors (“CAR”) has viewed these rental limitations negatively. CAR maintains that such rental limitations have restricted their ability to sell homes to investors wanting to take advantage of a down market. As a result, CAR has sponsored Senate Bill 150 (“SB 150”) which effectively exempts owners in a Community Association from any rental restrictions that were not in effect prior to the date the owner bought into the community. The justification for this bill is based on the California Legislature’s belief that “the right to rent or lease real property owned is a valuable property right that should be protected, irrespective of whether the real property is located within or outside a [Community Association].”

Effect of Senate Bill 150

SB 150 will take effect January 1, 2012 and will add Section 1360.2 to the California Civil Code. SB150 generally provides that:

(1) Any amendments to CC&Rs that would prohibit rentals are effective only as to owners who purchased after the amendment was already recorded and in effect.

(2) Rental “prohibitions” are outlawed. (It is not clear whether less serious restrictions, such as rental period minimums, will be permitted.)

(3) Owners must provide buyers with a statement describing any provision in the Association’s governing documents that prohibits renting or leasing of units within the community.

There were 113 Noe home sales, with an average sale price of $1,445,939.  Most homes sold in under 50 days.

Here’s a snapshot of summary sales data for Noe Valley single family homes sold in 2011.

Download full report

To calculate the dollar amount of the 1.9 percent annual rent increase, multiply the tenant’s base rent by .019. For example, if the tenant’s base rent is $1,250.00, the annual increase would be calculated as follows: $1,250.00 x .019 = $23.75. The tenant’s new base rent would be $1,273.75 ($1,250.00 + $23.75 = $1,273.75).

The Rent Board has yet to announce the interest rate payable on security deposits for the 3/1/12 – 2/28/13 period.

The overall index showed a 3.4% drop from October 2010 to October 2011.  In San Francisco, the news was worse.  Home values overall here went down by 4.7% during the same period.  For the 1 month period from September to October, San Francisco saw values fall by 0.7%.  Nationally, the decrease was 0.6%.  But, as we all know, real estate is all about location, location, location.  In locales where the median price is higher, homes aren’t getting hammered as hard.

While the overall figures looks dismal, our friends at SocketSite dug further into the Bay Area numbers and uncovered some variations within the market.  Higher priced homes are faring better in this real estate downturn.  Homes in the $600,000+ range showed a 1 month increase and the yearly figure, which was still down, is not nearly as bad as lower priced homes.

The bottom third (under $319,767 at the time of acquisition) fell 0.9% from September to October (down 9.1% YOY); the middle third was unchanged from September to October (down 8.1% YOY); and the top third (over $599,697 at the time of acquisition) rose 0.3% from September to October, down 1.6% year-over-year (versus down 3.1% in September).

The recent stats follow the overall trend of single family homes in San Francisco.  The homes in the top third have dropped 25% from their peak values while the bottom third and middle third of the market has seen price decreases of 60% and 41%.  And as Anna Marie Hibble wrote, the rise of Bay Area IPOs may just continue to put more zing in real estate, especially in the higher end of the market.

Posted By: Jenny Pisillo ( Email ) | Dec 28 at 9:00 am
http://blog.sfgate.com/ontheblock/2011/12/28/in-sf-higher-priced-homes-fared-better/

They go by the name of parklets, a word that didn’t exist two years ago, and when 2011 arrived there were only four. Now there are 22, with six more approved and 44 in various stages of review.

Their reach extends from Potrero Hill to the Outer Sunset, as far north as Washington Square and as far south as one planned for the Excelsior district. The latter parklet will be built by students at the Out of Site Youth Arts Center; by contrast, Audi sponsored a “promenade” on Powell Street that was designed by noted Oakland landscape architect Walter Hood with a budget rumored to approach $1 million.

They’re also attracting attention beyond the Bay Area. Parklets have popped up in Philadelphia and Vancouver, British Columbia. Several are planned for Los Angeles. Architectural Record devoted a page this fall to “the ultimate revenge on the modern city: one less parking space, one more park.”

Correction: Two parking spaces are sacrificed, not one. In their place goes a platform that sits level with the sidewalk and is adorned with seating, plants and some form of a protective edge.

They’ve become so popular that there’s even a spin-off in four “parkmobiles” near Yerba Buena Gardens that consist of low, customized dumpsters filled by eye-catching plants with an inset bench on one side.

Enough generalities. On to the specifics: a guided tour of every parklet now open. Some are more welcoming than others. Some already show their age. The best strive to create destinations, not just seating. It’s a design experiment being conducted before our eyes, and it’s not going away.

1 100 and 200 blocks of Powell Street

Powell Street Promenade

Opened July 2011

How it looks: The “promenade” consists of eight sleek platforms with aluminum bands that rise in spots to provide tables and benches within railings that are ribboned extrapolations of the theme. No two stops are alike; several have planters that ripple along the edge, the blade-like upper rims just wide enough for a slender derriere.

How it feels: These are the most upscale eddies – Audi’s budget no doubt exceeds the other parklets combined – and the chic tone might seem jarring alongside cable cars. Here’s the flip side: The promenade nudges tourists and visitors to expect the unexpected, even in the most familiar spots. And it does get used.

2 1570 Stockton St., 423 and 526 Columbus Ave.

Tony’s Pizza Napoletana, Caffe Greco and Caffe Roma

Opened October 2010-July 2011

How they look: These three parklets all were designed by Rebar Group, using yard-wide modules clad in planks of engineered bamboo; some units are flat, others include seating pods or planter boxes. Each of the trio has a different arrangement, but all cluster the flat units to create dining areas.

How they feel: The parklet outside Tony’s is the coziest, an urbane neighbor to Washington Square with colorful tile tables that add a bit of flash to a snug block. The ones outside caffes Greco and Roma are no match for the vast dimensions of Columbus Avenue; they’re like small barges along the shore of the Mississippi.

3 1755 Polk St.

The Crepe House

Opened May 2011

How it looks: Another early example of seating and not much else; even the drought-tolerant shrubs look perfunctory.

How it feels: Things were more inviting when the planters held small fir trees, but drivers complained about blocked sightlines.

4 1230 Polk St.

Quetzal Cafe

Opened May 2011

How it looks: Three planters perpendicular to the street split the deck into two equal sections. They’re also visually emphatic with thick walls of concrete, some striped and some sloped.

How it feels: Seating rather than chill space, to be sure. But by that standard, better than most.

5 384 Hayes St.

Arlequin and Mad Will’s Food Co.

Opened September 2011

How it looks: You know the drill. Concrete pavers, rectangular planters, movable tables and chairs. Two short benches along the sidewalk are a twist, but they don’t look inviting.

How it feels: On design-savvy Hayes Street, the utilitarian motif strikes a dour tone. Why linger here when Patricia’s Green is a block away?

6 Farley’s

1315 18th St.

Opened August 2011

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/12/28/BANS1MDAHQ.DTL#ixzz1iYCa8OJH

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.

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.

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

Your best bets: a small handful of “property-wealth islands,” including San Francisco and San Jose/Silicon Valley, both seen as “primary 24-hour gateways located along global pathways,” according to a report being released today at the Urban Land Institute conference in San Francisco.

San Francisco ranks third out of 51 cities as a place to invest in and develop commercial and multifamily apartment properties and fourth in for-sale home building, with San Jose two or three rungs lower in each category, according to the survey compiled by the institute and PricewaterhouseCoopers.

Washington, Austin and New York are the other top-rated cities.

“We come out very well as top investment places, although even here it’s still a bit of a chug,” said Kate White, executive director of ULI San Francisco.

Put the “chug” down to the enduring doldrums in the housing market, which continues to weigh on San Francisco and San Jose, if not as badly as in other parts of the Bay Area and nation. Even though both rank high in the home-building category, according to the report, their prospects for investment and development are described only as “fair.”

“There’s still an understandable reluctance by potential homeowners to get into the market,” said White.

Not so, however, when it comes to renting or leasing commercial space in high-tech areas like San Francisco’s Mid-Market and South of Market, a trend driven largely by the influx of a younger, more mobile and urban-oriented workforce.

“Gen Y is driving up the demand for apartments and driving up rents, which makes investing in apartments a safer bet,” said White.

Depending on how long it lasts, such a trend could be a game-changer for real estate.

“Living smaller, closer to work, and preferably near mass transit holds increasing appeal as more people look to manage expenses wisely,” notes the report. “More companies concentrate in urban districts where sought-after generation-Y talent wants to locate in 24-hour environments.”

A separate Urban Land Institute report, examining land use changes in California, takes the point further.

Projecting out to 2035, the report says demand for traditional single- family homes will decline, by as much as 10 percent, while “changing demographics” and other factors shift the real estate focus to smaller lots and “multiple or intergenerational households” within walking distance of “transit station areas.”

“California’s future is a lot more urban and transit-oriented than it has been historically. There’ll be an increasing demand for the 24-hour, livable city model,” said White. “The next generation is ushering it in, and local agencies need to plan accordingly.”

– These and other provocative notions will be chewed over at the ULI conference, today in San Francisco at the Hotel Nikko, and Wednesday at the Corinthian Event Center in San Jose. Agenda, speakers and registration at sfg.ly/sDt7tE.

The ULI/PwC report, “Emerging Trends in Real Estate 2012,” can be read and downloaded at sfg.ly/rKT6up.

The California land use report, “The New California Dream: How Demographic and Economic Changes May Shape the Housing Market,” is at sfg.ly/stQrNV.

Blogging: www.sfgate.com/columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/12/12/BUMU1MBG04.DTL#ixzz1hmLusnNh