SF New Developments

San Francisco Business Times - April 6, 2001

by Amanda Bishop

At the height of last year’s real estate boom, buyers madly scooped up luxury condos at One Embarcadero, shelling out more than $900,000 each for unfinished units at the high-rise near Pacific Bell Park.But now the game has changed. With would-be condo owners less eager to step up to the plate, One Embarcadero owner Eikon Investments may alter the rules.

Eikon officials insist that many people are touring the units even as they hint at future buyer incentives.

“This is not the market it was six to eight months ago,” said Sam Sacco, a spokesman for the project.

“The ownership knows it’s a different market and will adapt to the market the way any good real estate company would,” he said.

The changing economy is slowing the pace of buying in the market, local experts agree.

“Serious buyers won’t face a stampede of competition,” said Rick Rock, president of the San Francisco Association of Realtors and a realtor at Herth Real Estate.

But Alan Mark of The Mark Co., the agency marketing the Brannan high-rise, remains upbeat.

“There’s still healthy traffic,” he said. “It’s just taking a little longer for people to make decisions.”

Risky business

The high-rise condo business is risky because developers typically only realize profits on the last 10 percent to 15 percent of units sold, according to Justin Smith, a vice president specializing in residential properties at CB Richard Ellis Inc.

In addition, buyers can walk away from a deal without paying a dime until the developer gets what is known as a white paper — or public report — from the state. That usually doesn’t occur until the development is completed or near completion.

Such risks are the reason why the last decade saw virtually no new large-scale high-rises.

Now One Embarcadero, the 336-unit The Brannan, and Millennium Partners’ 142-unit Four Seasons are vying for buyers. Carpenter & Co. also just broke ground on its 100 condo units above a Starwood Hotel at Mission and Third streets, although marketing of the units has not yet begun.

Despite the competition, condo developers say they are confident and are not ready to slash prices. Mark sees plenty of buyers in the market ready to pay prices that average $850,000.

“We are seeing a lot of people who qualify,” Mark said. “Earlier, 25 percent of the buyers paid cash. Now people are getting financing.”

The Brannan has 15 units available in tower two, which is available in June. The third tower is not leased but won’t be available for a year.

Sacco said One Embarcadero has not yet lowered prices and has no immediate plans to do so, although half of One Embarcadero’s units, which start at $670,000, are now available.

“We aren’t panicking. Traffic has been extraordinary,” Sacco said. “People are interested. It will only get better once baseball season rolls around.”

One Embarcadero has many units available because most were not on the market until Feb. 28, said Sacco. The high-rise is converting from apartments to condos and the units not on the market were being used by employees or were leased, he said.

Smith, on the other hand, was surprised that Eikon held back from making more units available during the economic boom.

“I would be shocked that a developer would hold off that volume of units in light of the euphoric prices achieved last year,” Smith said.

If the economy heads toward a recession and consumer confidence falls, luxury housing will be a tough sale, Smith said.

“Buyers who are pessimistic aren’t going to go out and buy a $700,000 property,” he said. “They’ll rent an apartment. I think there could be a short-term oversupply of condos.”

Amanda Bishop covers real estate for the San Francisco Business Times.