General San Francisco Real Estate News

Impact for Bay Area First Time Buyers From Proposed Tax Changes


San Francisco home buyers could be impacted by the upcoming Tax Bill


Bay Area First Time Buyers will be impacted by the proposed tax changes.  Here are some of the changes that will affect individual ownership of real estate:

• Lowering the cap on mortgage interest deductions on newly issued loans totaling no
more than $500,000, down from the current $1 million
• Ending deductions on second homes or vacation homes
• A new cap of $10,000 on property tax deductions
• Limits to the capital-gains exemption used by homeowners when they sell

The impact would be particularly severe for households with incomes between $100,000 and $200,000 — 30 percent of Bay Area households.

• Limiting the mortgage interest deduction to $500,000 impacts 70 percent of Bay Area home sales.
• Buyers with a new mortgage of $1 million would lose $20,000 in deductible mortgage interest in the first year.
• Putting caps on new buyers and placing further limits on capital-gains exemptions would
discourage current homeowners from selling, further intensifying the inventory shortages that
are plaguing the region.

The proposed tax changes could be more disadvantageous for those with incomes over
$75,000, who comprise two-thirds of itemized filers and one-third of California returns.

• In the Bay Area, about 46 percent of households earn more than $100,000 and about 30 percent earn between $100,000 and $200,000. Also, home prices in the Bay Area are well above $625,000, which means that the mortgage interest deduction cap (assuming a $500,000 mortgage loan with 20 percent down) would be more impactful.

• Further, while the mortgage interest deduction averages $12,283, and 24 percent of all returns
deduct the mortgage, the proposed changes are more impactful on the future homebuyers and the housing market in general since the proposed changes would apply to newly originated mortgages.

Over the last year, 70 percent of Bay Area homes sold were priced above $625,000, and 30 percent were priced higher than $1.2 million.

Those two price benchmarks represent mortgages between $500,000 and $1,000,000, with an assumed 20 percent down payment. Thus, 70 percent of home sales are at a potential loss from changes to the mortgage interest deduction. Granted, about 26 percent of transactions below $1 million were all cash in the Bay Area, according to Pacific Union’s recent analysis; however, that share was smaller in markets such as San Francisco, Silicon Valley, and the East Bay.

All-cash buyers are more likely to purchase homes priced above $2 million, and only 13 percent of cash buyers were first-time buyers. 

Nevertheless, the lower cap on the mortgage interest deduction would be particularly detrimental to first-time buyers in in the Bay Area. For example, a buyer of a $1.2 million home with a $1 million mortgage would pay almost $40,000 in amortized interest in the first year. However, at the $500,000 mortgage interest deduction cap, the buyer would be able to deduct only half of that interest, thus losing about $20,000 in deductions.

Again, if this is a first-time buyer and likely to fall in the income range of between $100,000 and $200,000 in the Bay Area, the loss of a $20,000 mortgage interest deduction would make a notable difference, not only in the resulting tax bill but also on the decision to purchase a home. Also, note that while the proposed tax plan reduces the number of brackets, not everyone’s tax rate will decrease, and these deductions will play a big role in where a household falls along the income spectrum.

A $10,000 cap on real estate property taxes would also impact those buying a home priced above $1 million since California property taxes generally average about 1 percent.

Again, in the Bay Area, 36 percent of home sales year to date were priced higher than $1 million. For example, a buyer of a $3 million home would lose $20,000 in property-tax deductions. Six percent of San Francisco sales and 7 percent of San Mateo County sales are priced above $3 million.

Ultimately, we may or may not see some form of tax reform pass.

Admittedly, the changes discussed here are somewhat simplified, and not all proposed changes have been evaluated. Also, this analysis does not include the potential impacts on corporate taxes, charitable deductions, or pass-through organizations. Overall, we would urge caution moving forward with the proposal as it currently stands.

Summer 2017 SF Real Estate Market Update

As we close out Summer 2017, here is a quick snapshot of what the Bay Area real estate market is like for buyers and sellers.

Single Family Homes in SF

The month’s supply of inventory for single-family homes in San Francisco was 1.0 in July, the lowest so far this year. Buyers took an average of 28 days to close sales, five days quicker than one year earlier.

July’s median sales price was $1,425,000, and buyers continued to pay premiums — an average of 109.8 percent of original prices.

Condominiums in SF

The median sales price for a San Francisco condominium was $1,200,000 in July, up about 10 percent on both a monthly and yearly basis. Buyers paid an average of 104.2 percent of asking prices, nearly identical to numbers recorded in June.

The months’ supply of inventory was 1.6, and units left the market in an average of 37 days.

Marin County

With a July median sales price of $1,210,000, homes in Marin County cost about the same as they did one year earlier. The months’ supply of inventory was 1.3, unchanged from June and down on an annual basis.

Homes sold in an average of 44 days, and sellers received 99.5 percent of asking prices.

Defining Marin County: Our real estate markets in Marin County include the cities of Belvedere, Corte Madera, Fairfax, Greenbrae, Kentfield, Larkspur, Mill Valley, Novato, Ross, San Anselmo, San Rafael, Sausalito, and Tiburon. Sales data in the charts below includes single-family homes in these communities.

East Bay

For the sixth consecutive month, the median home price in the East Bay was in the seven-digit range in July — $1,100,000. With a 1.1-month supply of homes for sale, inventory was improved from June but remains exceptionally tight.

Homes left the market in a brisk 19 days, making the East Bay one of our fastest-paced regions. East Bay buyers continued to pay substantial premiums, an average of 113.7 percent in July.

Defining the East Bay: Our real estate markets in the East Bay region include Oakland ZIP codes 94602, 94609, 94610, 94611, 94618, 94619, and 94705; Alameda; Albany; Berkeley; El Cerrito; Kensington; and Piedmont. Sales data in the charts below includes single-family homes in these communities.

Silicon Valley

The median sales price in our Silicon Valley region dipped from the previous month in July, but at $2,910,000 it remains the most expensive region in which we operate. For the first time in six months, buyers received slight discounts, paying an average of 99.7 percent of original prices.

With a 1.5-month supply of homes for sale, inventory was slightly improved from June but down from July of last year. Homes stayed on the market an average of 29 days, the longest amount of time since February.

Defining Silicon Valley: Our real estate markets in the Silicon Valley region include the cities and towns of Atherton, Los Altos (excluding county area), Los Altos Hills, Menlo Park (excluding east of U.S. 101), Palo Alto, Portola Valley, and Woodside.


San Francisco Supply and Mortgage Rates Impact

San Francisco Condo Market in Healthy Equilibrium: While the Bay Area as a whole is generally a supply-constrained environment, the city of San Francisco currently has a healthy level of inventory in its pipeline.

There is roughly a year’s supply in the city, with 1,090 condominium units currently selling, as well as 950 units under construction (and three times as many rental units!). Condominiums that are approved for construction total over 3,000 units with an additional +/- 30,000 units yet to be determined as for-sale or rental. San Francisco condominium inventory is just above the historical norm, though not considered oversupplied and will need additional construction going forward to satisfy demand.

Increasing Interest Rates Will Undoubtedly Shrink the Buyer Pool: Interest rates are on the rise, and it’s going to directly impact the proportion of those who can qualify for homes.

On a 30-year fixed mortgage at 4.0 percent, roughly one-quarter of Bay Area households can qualify for a $1 million mortgage. When the mortgage rate increases to 5.0 percent, as John Burns projects for the year 2020, the proportion of households that can qualify drops to 20 percent.

A 6.0 percent rate would lead to 16 percent qualified households.

A 5 percent rate translates into a 20 percent decrease in the buyer pool of qualified buyers for a $1 million mortgage over the next four to five years.

Growth Still Remains at Decelerating Rates: The Bay Area has generally experienced rapid pricing appreciation from 2011 through 2015. This surge in pricing following the Great Recession was not sustainable for the long term, though there is still growth ahead at more modest increases.

The Burns Home Value Index projects pricing appreciation at the MSA level. Prices in 2017 and 2018 are up 1 percent to 5 percent annually across all five Bay Area markets, with the initial signs of a declining market occurring in San Francisco and the East Bay by 2019.

Rental Market Slowing: For the first time in years, San Francisco rents have stopped appreciating and in some cases are beginning to see reductions in some communities.

Whereas the rental market has typically been the “affordable” substitute to ownership, rents have grown at extraordinary rates in the San Francisco MSA. This pushes demand for the rental market to less core locales such as Dublin, San Ramon, or even farther.

Supply Remains Solid in San Francisco City, Though Extremely Limited Elsewhere: The current supply in San Francisco is adequate to support current levels of demand. Surrounding areas such as San Mateo and Marin counties, however, are woefully under supplied.

These areas are largely built-out locales (specifically through the Peninsula) with expensive land values and are often very difficult to gain approval for new construction.

The E/P Ratio Not What It Seems: The employment-to-permit ratio is typically thought to be in balance at 1.25 jobs for each additional housing unit. During the recent surge in San Francisco employment, this ratio jumped to levels of more than 10 jobs per housing unit, showing a seemingly massive relative lack of supply.

Though supply was in fact scarce, this ratio is misleading in the sense that not all of these jobs provide income levels necessary to purchase or even rent within the San Francisco MSA. This leads to a massive “export in demand,” creating a need for housing outside of the job-originating markets such as the San Francisco MSA and into more outlying markets such as the East Bay (such as the state Route 4 corridor).

Which Bay Area City Comes In #1 for Having Nations Highest Home Value Appreciation?

Like most investments, purchasing a home is no different, timing can be everything. Zillow analyzed cities with populations over 50,000 and found the luckiest home owners in America – those who bought in the right place at the right time.

These extraordinarily lucky home buyers have now seen the highest appreciation growth on their homes – most with home values that have nearly doubled in as little as four years!

The analysis tracked home purchases beginning in January 2006.

Below you’ll find the list of where the luckiest home buyers in America live, how much their home was purchased for and how much their home is worth today. You will see that this is a big win for Bay Area home buyers as they post some astounding numbers.


Month purchased: October 2011
Purchase value: $262,300
Current value: $466,900
Value growth: 78.0 percent


Month purchased: June 2009
Purchase value: $719,300
Current value: $1,289,600
Value growth: 79.3 percent


Month purchased: January 2012
Purchase value: $92,900
Current value: $169,300
Value growth: 82.2 percent


Month purchased: November 2011
Purchase value: $179,600
Current value: $328,100
Value growth: 82.7 percent


Month purchased: February 2012
Purchase value: $149,100
Current value: $276,900
Value growth: 85.7 percent


Month purchased: December 2011
Purchase value: $170,400
Current value: $317,400
Value growth: 86.3 percent


Month purchased: January 2011
Purchase value: $58,600
Current value: $110,200
Value growth: 88.1 percent


Month purchased: October 2011
Purchase value: $160,400
Current value: $315,200
Value growth: 96.5 percent


Month purchased: October 2011
Purchase value: $159,300
Current value: $324,500
Value growth: 103.7 percent


Month purchased: September 2006
Purchase value: $1,170,300
Current value: $2,407,100
Value growth: 105.7 percent

It’s no surprise that with a thriving hi-tech economy, the Bay Area leads the nation representing 8 out of the 10 cities listed as having the healthiest real estate markets in America with Palo Alto bringing home the #1 spot. If you have been fortunate enough to have purchased at the right time in any of these Bay Area cities, congratulations on being one of the luckiest home owners in the nation!

If you are living in the San Francisco/Bay Area and would like to know how much your home is worth, the Red Bridge Group at Pacific Union in Noe Valley can you provide you with an in-depth home value analysis at no cost or obligation to you. Click here to contact us today.

The Future of Residential Rent and Eviction Control in San Francisco and How to Survive and Prosper in the Meantime

By Steven Adair MacDonald

With the permission of Mr. MacDonald, we are posting his recent summary of the history of rent control that he provided to the San Francisco Real Estate Roundtable. His twelve opinion points below should not be misconstrued as legal advice. Mr. MacDonald is a Professional Attorney at Steven Adair MacDonald Partners, P.C. and is a referred professional to clients of the Red Bridge Group in Noe Valley.

Introduction: I will very briefly describe for you what our local system of residential rent and eviction control is really like 36 years after its creation. I represent both sides. I am not an ideologue. I have met the nicest landlords and the most vulnerable tenants in my time. I have also encountered some extremely unsavory building owners and completely criminal tenants, as well. As a lawyer I am duty bound to take my clients as I find them and to be the most effective advocate I can. At the conclusion I will argue that our present system ultimately helps no one. The forces of supply and demand will always control the cost of living in our fair city.

History: Rent control got its start in the early 20th century in New York City. It was also adopted in many places during World War II as part of necessary price controls. The more modern history is a product of liberal politics in the early 1970s in the Boston area, jumping to the West Coast by the end of that decade. In Berkeley, Santa Monica and San Francisco a more strict form of control was passed into law. Actually, rent and eviction control go hand in hand. One without the other is ineffective. This is particularly so since our state legislature in the mid-1990s decided that after a tenant vacates a landlord may raise the rent to market rate. It then becomes controlled again.

“Just Cause”: Rent control only allows tiny rent increases each year. But the other component, eviction control, allows the tenant to remain indefinitely, unless the owner has “just cause” to terminate the tenancy. There are sixteen. The first seven are “fault” based, i.e., nonpayment of rent, nuisance, etc. The latter nine are “no fault”, e.g., owner-move-in or Ellis Act. These all come with a host of technical requirements and the latter group requires relocation payments. They also mandate “good faith, lack of ulterior motive”, subjective issues which an expensive jury trial might have to decide.

Legal Challenges: Time and again landlords have challenged these local ordinances, all the way to the California and U.S. Supreme Courts. No full frontal assault has ever succeeded.

Vacancy De-Control: I alluded to vacancy de-control. That means that when a tenant finally vacates, voluntarily or involuntarily, the rent can be raised to market. If the tenant enjoyed protection for a couple of decades or more, the rent could triple or quadruple. If it goes up $2,000.00 per month the value of the building can go up $200,000.00 as the rent roll typically determines the value of an investment property. As you can imagine, in the involuntary displacements there are many battles and considerable legal fees.

Current Results: 36 Years After Passage The result of all this, no doubt never considered in 1979 when our Board of Supervisors and Mayor Dianne Feinstein signed this into law, is tremendous tension. The tenant is desperate to maintain possession, the landlord highly motivated to recover it. Frankly, I submit, and even the executive director of the Rent Board has agreed with me, that it is beginning to look like any tenant now living in a smaller building WILL be evicted, sooner or later, one way or the other. There is a target on their back. Even elderly, low-income, disabled tenants.

What Is The Ellis Act?: The Ellis Act is state law and so it trumps local ordinances. It allows a landlord to clear out a building: everyone and anyone. Some relocation money is required. But then the owner cannot re-rent for five years. What are his options? 1. Live in it, or hold it empty, if he can afford to, and re-rent it five years later for top dollar, or 2. Sell off the apartments as tenancies-in-common, TICs. Not the same as a condo, but almost. Individual financing now available. Very tempting, either way. Owners have profited handsomely. Either the rents increased ten-fold; or the value per unit went from $200,000 to $1,000,000 when sold individually.

Who Benefits?: I am not an economist. But I think that I understand the basics. We have a limited supply of housing on the tip of this peninsula. We have a very steady and strong demand. Rent control results in two distinct tiers of housing prices. I remember when my son, as a young lawyer, moved into the Golden Gateway Center, a massive apartment complex by the Embarcadero. He told me, as I helped move him in, that I would notice two distinct types of occupants. Older folks, paying $700.00 per month for their unit, and younger professional types paying several thousand for identical apartments! I believe that without rent control artificially deflating one section of the market, a free market would result in the higher rents coming down to the equilibrium. Even now, in the long run, with the death or departure of the tenant, the landlord ultimately gets back to the high market rent, much higher than the equilibrium rent. So, nobody ultimately benefits. It averages out. In fact, the tenants who have enjoyed reduced rent for many years suffer the most when they get evicted through owner-move-in, the Ellis Act, or even a buyout. They are completely unprepared for the inflated market rent. They benefited for a while, a long while, and then face a severe shock. Frankly, the Ellis Act (despised by some) opens up many opportunities for middle class folks to buy their home. A T.I.C. apartment is less costly than a condo. When the “evil” landlord Ellises a ten-unit building, making a very tidy profit, he also allows ten people, or couples, or families to own their home in San Francisco. If it got done, or if condo conversion was allowed, on a larger scale prices would come down, given the larger supply.

How Landlords May Prosper: 1.Know the law, at least the basics. 2.Belong to SFAA or SPOSF, the landlord guilds, sources of education. 3. Think before you speak or consult a knowledgeable attorney whenever even a minor dispute erupts. 4.Have great insurance. Landlords and their insurance companies probably pay out $50 million in wrongful eviction claims and related matters here in San Francisco every year. 5. Know when you are legitimately entitled to a market rent increase, i.e., when the last original roommate has departed. Understand when you have “just cause” for eviction, either fault-based or no-fault. 6. And yes, if you have a building where rents are a fraction of market consider cashing in by selling an empty building as T.I.C. homes for first-time homeowners. If you don’t the next owner of the building will probably figure out that is how to maximize the value.

How Tenants May Survive: Tenants can best survive in the current system by renting in a building constructed before 1979, and thus rent controlled. They should live in a complex as large as possible so that it is unlikely that they will ever face an owner-move-in eviction. Similarly, up to this point, owners are reluctant to Ellis Act, i.e., empty out, a very large building due to their limited options afterwards. However, that may change, and it already is. Witness the Park Lane building, some thirty-three rent-controlled Nob Hill luxury apartments that were all emptied out last year and sold as high-end T.I.C.s. And, of course, tenants must behave themselves, not giving an opportunistic landlord any ideas about a fault-based eviction.

The Future- Peaceful Disassembly: When the total dysfunction of this present regulatory regime becomes painfully apparent to a growing proportion of the electorate I suspect that some of our very capable local elected officials, Scott Weiner and David Chiu come to mind, will take the necessary leadership on the issue in future years or decades. Probably, at that point, they could support amending the ordinance to deregulate units, permanently, when they become vacant. Protections will remain for those tenants already in place. Our society can always, as it has, call for a public funding of housing for those in need, elderly, disabled, low income. The result will be a gradual return to a free market, and an equilibrium resulting in deflating rents for some units, and higher rents for the newly decontrolled units. It may also save the public fifty million dollars per year in legal fees, and the insurance companies and those paying policy premiums another fifty million dollars annually. (I base these figures on amounts I witness cycling through my firm and what I perceive my market share to be.) There won’t be any more buildings being kept vacant for five years, either.

Political Will & Leadership: Currently, more so than ever, elected officials particularly when seeking re-election or higher office, are falling over each other to be seen as more pro-tenant than their competitor. Recall the last election when the “two Davids”, Campos and Chiu, both members of the Board of Supervisors, both Harvard Law school grads and liberal Democrats, sharing a 98% identical voting record, had to tar each other claiming one was more concerned with tenant rights than the other. David Chiu made the mistake of allowing me to host a fundraiser for him only to be met by loud protesters outside John’s Grill since I represent landlords (even though I represent tenants, too.)

Conclusion: I am not comparing rent control to the Soviet Union. Not at all. In fact, my personal politics may be the most liberal in this room. I am just saying that it took a man like Gorbachev, a man of the century, really, to have the intellectual integrity and leadership needed to admit when something is not working. Even something sacred. We will need that, too, some day. -S.A. MacDonald

Senate’s Housing Committee rejected Ellis Act Bill (SB 364) in a 6-5 first vote

Today the Senate Committee on Transportation and Housing heard and rejected the Senate Bill 364 by Senator Mark Leno. Positioned as a bill to “strengthen” the Ellis Act, this legislation would require a five-year “hold period,” during which it would prevent the owner of any rental unit to utilize the Ellis Act.

While the bill might sound like a positive solution in theory, in actual practice it will only create more Ellis Act evictions and worsen the housing affordability crisis. As new property owners are temporarily paused from performing evictions, SB 364 will create market forces that will push long-term property owners to evict their tenants when choosing to put their property on the market.

Sellers in the market can still evict their tenants because they’ve owned the property for more than five years. They will be compelled to perform Ellis Act evictions before selling the property because of the significantly higher market price for a vacant residential unit.

Today, local housing advocacy groups like and Small Property Owners of San Francisco are brought hundreds of people to Sacramento to express their opposition to SB 364. Among those who traveled to Sacramento to oppose SB 364 are first-generation immigrants, Chinese-Americans, and low-income and middle-income families. Over 1500 petitions and letters have been written to State Senators and Mayor Ed Lee asking them to oppose SB 364 and work on a local solution for San Francisco’s housing affordability crisis.

“The San Francisco Association of Realtors stands with and Small Property Owners of San Francisco in opposing SB 364,” said Walt Baczkowski, CEO of the San Francisco Association of Realtors. “It’s bad for all San Franciscans and will only make housing affordability and evictions worse. We call on Mayor Lee to focus on rational, local solutions to address San Francisco’s housing affordability crisis.”

SF Housing Groups Challenge Buyout Ordinance in California Supreme Court

A number of housing industry non-profits and organizations filed suit today against the City and County of San Francisco in California Superior Court, challenging the Buyout Agreement ordinance, recently passed by San Francisco’s Board of Supervisors, as unconstitutional.

To learn more about the specifics of the buyout ordinance, please see yesterdays blog post: “San Francisco has adopted a new ordinance regulating Buyout Agreements”

The legislation, sponsored by Supervisors Campos, Avalos, Kim and Mar, was passed by the full Board of Supervisors in late October and becomes effective Saturday, March 7, 2015. The law is being challenged by plaintiffs the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, the San Francisco Association of Realtors, the Coalition for Better Housing and Norm Larson, a small property owner in San Francisco.

“It is important to note that in the 2004 San Francisco Superior Court case Baba v. Board of Supervisors in San Francisco, the courts found that certain aspects of the Rent Ordinance that regulated communication between landlords and tenants were unconstitutional, and that restrictions on the regulation of speech between property owners and tenants was unlawful. We believe the Court will also overturn the unlawful aspects of this ordinance” said Janan New, Executive Director of the San Francisco Apartment Association.

“In attempting to regulate an agreement between two private parties, the legislation likely violates the First Amendment right to free speech. It provides restrictions, and seeks to punish property owners for exercising a right that every individual has: to enter into a mutually acceptable contract with another person. Additionally, the ordinance conveys a set of rights to one group of people, San Francisco tenants, and denies those same rights to another group, San Francisco property owners,” stated Walt Baczkowski, CEO of the San Francisco Association of Realtors.

“In addition to opening up the City to liability, this legislation presents a procedural quagmire that is nearly impossible for the growing population of monolingual property owners, property owners who speak English as a second language, and property owners who do not have the benefit of an attorney to navigate. The buyout ordinance is so onerous and riddled with procedural requirements that it sets up underrepresented, monolingual and immigrant property owners for procedural noncompliance, and will undoubtedly increase litigation between property owners and tenants. We are at a time and place in our city where we need to encourage cooperation rather than litigation,” said Small Property Owners of SF Institute President Noni Richen.

“Aside from being illegal, the buyout ordinance will only bring harm to both property owners and tenants. In attaching the same restrictions on condominium conversions that apply to buildings that have been Ellis Acted, this legislation propagates unhealthy and wildly inaccurate myths about buyouts, and removes all benefit of a buyout, which helps many tenants put a down payment on a new home. In doing so, the ordinance incentivizes use of the Ellis Act in a way that is contradictory to the City’s housing goals. The unconstitutional restrictions and the unintended consequences of the law are far too great,” warned Brook Turner, Executive Director of the Coalition for Better Housing.

The leading plaintiff organizations hope to continue a recent string of legal victories against the City and County of San Francisco, where a number of housing laws and regulations have been passed by the Board of Supervisors in the past year and a half but have not sustained legal muster. The organizations have recently succeeded in overturning property restrictions prohibiting units from being made bigger or merged to accommodate growing families, and in striking down exorbitant relocation fee payments where Ellis evictions have taken place. The organizations are seeking declaratory and injunctive relief against the Buyout ordinance.

For more details on this new ordinance on SF buyout agreements, click here.

San Francisco has adopted a new ordinance regulating “Buyout Agreements”

San Francisco has adopted a new ordinance regulating “Buyout Agreements” (agreements by which a landlord pays a tenant money or other consideration to vacate a rental unit) and “Buyout Negotiations” (any discussion or bargaining, oral or written, between a landlord and tenant regarding the possibility of entering into a Buyout Agreement) for residential rental properties which are subject to local rent control laws.

The new law is operative March 7, 2015, but it has a retroactive effect which precludes condo conversions for properties where (a) Buyout Agreements were entered on or after October 31, 2014 and (b) involved 2 or more tenants (even in the same unit), or any tenant of a “protected class” as defined in the ordinance. Note that local law presently (a) allows conversion of certain 2 residential unit properties where each unit is owner-occupied by a separate owner; (b) otherwise disallows conversion of 2–6 residential unit buildings unless approval was sought under the 2013 “Expedited Conversion” Program; and (c) now prohibits conversion of 5+ residential unit properties.

Under the new law, prior to Buyout Negotiations with any tenant, a landlord must provide the tenant with a written disclosure including, among other things, references to their rights to: refuse to negotiate or enter into a Buyout Agreement, consult with an attorney, and rescind (unilaterally terminate) any such signed agreement for a period of 45 days after the agreement was fully executed. Further, this disclosure must include a statement that the tenant may obtain information from the San Francisco Rent Board about other Buyout Agreements in the tenant’s neighborhood, a list of tenants’ rights organizations, a statement explaining the legal implications of condominium conversion for landlords entering any such agreements, and, for entity landlords, the names of all people within that entity conducting the negotiations, as well as the names of all people who will have decision-making authority over the terms of the Buyout Agreement.

Additionally, prior to Buyout Negotiations with any tenant, a landlord, among other things, must also (a) provide notice to the Rent Board of the landlord’s name and contact information, the names of the tenants with whom the landlord intends to negotiate, the address(es) of the unit(s) involved, (b) a statement under penalty of perjury that a proper disclosure (discussed above) has been provided to each tenant, and (c) only enter into written Buyout Agreements and include certain mandatory language in them. A copy of any executed Buyout Agreement must be filed with the Rent Board within 14 days after the tenant’s rescission period has expired. The Rent Board will be creating a publically searchable database of such agreements, and required disclosure and notice forms to use to comply with this law.

If, in considering the purchase of a property, a buyer contemplates any Buyout Negotiations, any such buyer is strongly advised to seek qualified legal counsel concerning such plans before entering into a purchase agreement or removing any relevant contingencies. The above is only a partial summary of the new law (CCSF Administrative Code §37.9E & Subdivision Code §1396(e)(4)). The full text can be found at:

Source: SFAR Form “Tenant Buyout Legislation Advisory and Seller’s Supplemental Disclosure Re Buyouts”

San Francisco Apartment Buildings – Market Update Q4 2014

SF Apartment Buildings 2014 Overview

As we close up the first whole month of 2015, we wanted to take the data that we’ve gathered from the past year and give you a complete market overview for San Francisco Apartment Buildings.

As we forge through 2015, barring any unforeseen catastrophic events or any major economic changes, we believe the apartment market will continue advancing with positive momentum. The lending market is contributing to this positive trend by boasting much liquidity in the marketplace and providing borrowers with historic low interest rates.

The average price per square foot for all 5+ unit apartment buildings in SF is well over $400 and is expected to continue to rise. The rise is largely due to low-paying tenants moving out and market rental prices hitting all time highs.

*Because of the huge variety in buildings sold, average dollar per square foot is a very general statistic when applied to investment property sales. This data is from sales reported to MLS.

In San Francisco, capitalization rates for 5+ unit apartment buildings have continued to drop, in some areas below 4%. While we don’t know how much lower they can go, we do foresee cap rates staying steady until there is a rise in interest rates.

The higher the cap rate the greater the return on investment as measured by net income over purchase price.

* This data is from sales reported to MLS, but may contain errors and is subject to revision.

San Francisco has continued to have steady transaction volume in apartment building sales and with Proposition G being shot down late last year, buildings continue to close at record numbers.

If you are a San Francisco Apartment owner thinking about selling sometime in 2015, contact Red Bridge Group, your top multi-unit sales specialists.

Ellis Act San Francisco Court Case Results

Congratulations, San Francisco Investment Property Owners.

ellis act courthouse

You scored a huge win at the end of last year when a federal judge declared the city’s most-recent Ellis Act relocation fees unconstitutional. The decision by U.S. District Judge Charles Breyer shot down a new city law that required property owners who use the Ellis Act to pay displaced tenants these exorbitant fees:

The difference between the current rent and the amount needed to rent a comparable unit in the city at market rates for two years. Some amounts have exceeded $100,000. Even though the city has filed an appeal, in the meantime the judge’s ruling stands. This appeal could take years to be heard by the courts again.

What issues did the federal judge have with this new Ellis Act law?

Ellis Act and Property Rights

1. Judge Charles Breyers expressed that this violates property rights because it requires owners to pay for conditions they didn’t cause: the skyrocketing prices of rental housing and the gap between market rates and maximum charges under the city’s rent control law.

In a one day trial, Judge Breyers explains that the ordinance “seeks to force the property owner to pay for a broad public problem not of the owner’s making. A property owner did not cause the high market rent to which a tenant who chooses to stay in San Francisco might be exposed, nor cause the lower rent controlled rate the tenant previously enjoyed.”

Ellis Act and Use of Fees

2. Judge Breyers also concluded that the ordinance did not require tenants to spend the fees on replacement housing in San Francisco, or anywhere else.

Ellis Act and a Constitutional Principle

3. The ordinance violated a constitutional principle: when the government confiscates private property, by condemning land or exacting a fee for owners’ use of their property, the price must be at least “roughly proportional” to the impact of the owners’ actions. Let’s relate this to the city ordinance that enacted and upheld in 2005 which required landlords to pay displaced tenants $4,500 plus inflation adjustments, an amount that Breyer said was roughly equal to the expenses they face in moving out.

ellis act relocation payments
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