[BTinSF]

Friday, November 14, 2008
Market turning flashy S.F. condos into rentals
San Francisco Business Times - by J.K. Dineen

For months, observers of San Francisco’s condo industry have been wondering when the Anka Property Group would start selling units at the Argenta, the handsome new tower at One Polk St. completed in September.

Now the answer is clear: no time soon. Instead, the Australian developer has listed the entire Civic Center property for sale with Cushman & Wakefield and is marketing it as a rental building. Offers were due on Nov. 11.

The 17-story structure is one of a number of San Francisco condo projects that are going rental — or considering going rental — at a time when the apartment market remains strong but condo prices are declining. Another condo development, the 52-unit Artani at 818 Van Ness Ave., has been advertising units as both condos and rentals in recent weeks. At 1401 Market St., Crescent Heights is planning apartments rather than condos in a two-tower project approved 18 months ago for 720 units. Crescent Heights attorney Tim Tosta, a partner with Luce Forward, said the units are being redesigned to better fit the rental market.

The choice of whether to gamble with a dismal housing sales market or go rental and wait for a recovery is a decision many developers are facing, according to Paul Zeger, president of Pacific Marketing Associates.

“Anybody who has not closed a unit yet has to be looking at going rental,” said Zeger, “If the retail value as condos is not enough to pay off the bank and return the equity of the developer then going rental is a way to preserve equity and provide a return for investors.”

But it’s not an easy transition. Developers looking to switch to apartments either have to refinance their debt for several more years or find new lenders willing to step in.

“You have to be confident or patient enough that you can wait until the market recovery is in place,” he said.

As a rental property, the Argenta could command a premium because of location and design, said Zeger. The 179-unit tower is expected to fetch between $75 million and $80 million, or between $400,000 and $450,000 a unit. That is significantly less than the $100 million or so that industry observers estimate Anka spent on land acquisition, construction and entitlement fees.

Officials from Anka did not return several calls seeking comment.

A marked slowdown in the start of new condo projects suggests that there will be little new inventory in 2010 and 2011. That may provide a nice opportunity for high-quality apartment buildings originally intended for condos.

“I think it will eventually go condo — everything you see right now that is going rental will come back,” Zeger said.

jkdineen@bizjournals.com / (415) 288-4971

Source: http://sanfrancisco.bizjournals.com/...7/story15.html