MARKET UPDATE BLOG

Highlights: bisnow bay area multifamily & affordable housing summit

Highlights: BISNOW Bay Area Multifamily & Affordable Housing Summit

March 9, 2023

Event:
BISNOW Bay Area Multifamily & Affordable Housing Summit

Event Date:
Tuesday, March 7th, 2023

Keynote Conversation:
City and County of San Francisco Chief Economist, Ted Egan

  • 35% of service workers moved out of the Bay Area.
  • Office vacancy rate is 25%, 2% unemployment rate.
  • Tech companies hired more people during the pandemic.
  • BART & Muni ridership is at 25-30% of pre-pandemic levels.
  • Employees average 2-3 days working from home.
  • 80% of SF GDP from office.
  • SF/SJ two weakest return-to-office since the pandemic, high housing costs drove them out.
  • Multi-family rents are 250% compared to the US average.
  • Office adjustment could take ten years to work out.
  • The majority of movement of San Francisco has been to other counties within the Bay Area.

Bay Area’s Multifamily Recovery: Investment, Development & Design:
Investment outlook, policies & permitting, creative deal structures & new design trends catching the market’s attention

  • Low cap rates, low-interest rates, and rent growth of 2010-2020 are over.
  • Interest rate instability halts riskier construction activity—some level of stability is required for riskier projects to resume.
  • Construction costs are coming down due to less activity, causing subcontractors to cut their asking prices.
  • Smaller projects are suffering due to supply chain issues (12-24 months).
  • Entitlements and permits are causing uncertainty, and planners changing from reactive to proactive.
  • 100 new housing bills since 2016. ab330 kills affordable housing.
  • Affordable projects only work with subsidies -union labor pricing themselves out of the market due to contracts signed several years ago.
  • Modular construction and printed buildings are one way to bring down costs.
  • Davis-Bacon Act causes union project costs to go up.

Roadmap to Meet the Need for Affordable Housing:
Strategies prioritizing the ever-increasing demand for a better future & what’s in the development pipeline

  • SB 35 – sunsets in 2026.
  • since 2017, 23,000 units have been applied for under Sb35, 3,400 in SF have been applied for, 2,970 are affordable.
  • Need more funding measures for affordable housing.
  • Modular units run at 3/4 the cost.
  • Short-term project starts to get better pricing from general contractors than longer-term windows.
  • SF policies stop market-rate housing which also stops affordable development.
  • one state bonus density project has been built in SF since 2017. SF charges fees on bonus units which restricts projects.
  • SF needs zoning reform through housing elements, a streamlined approval process, and CEQA reform.

Addressing Evolving Resident Needs:
Tech integration, Amenities, Sustainability, and Innovations

  • Electrification of the grid to eliminate incentives for gas saving.
  • The cost to heat water electrically is 14x greater than gas.
  • Less parking spaces for units in SF.
  • Billing back utilities helps to reduce usage -coworking amenities and entertainment amenities for coworking space.
  • EV charging needs load sharing to maximize electrical infrastructure.
  • Need more electrical generation capabilities.

Simon Yu
Commercial Mortgage Banker
D: 415.872.0903
simon.yu@slatt.com

Niko Tsiplakos
Assistant Vice President
D: 650.443.9041
niko.tsiplakos@slatt.com