Apartments remain the darling for Bay Area housing development, but condo conversions and new construction are poised to make a comeback.
Sticker-shock-inducing rental rates — such as $4,000 for a one-bedroom — in San Francisco have made outlying areas such as the Peninsula and the Interstate 680 corridor more attractive for renters and developers.
About 2,500 apartments are expected to hit the San Francisco market in 2013 with hundreds more under construction in cities such as Redwood City, Foster City, Dublin, Emeryville and Berkeley.
Next year, developers in Walnut Creek plan to break ground on numerous apartment projects such as Mill Creek Residential’s 126 units at 1960 North Main St. and Laconia Development’s 141 units at 1500 N. California Blvd.
“In Walnut Creek, we haven’t seen the big rent increases that we’ve seen in other areas,” said David Fiore of Mill Creek. “There’s some room for growth.
Mill Creek recently broke ground on the 105-unit Mission Piers in San Francisco’s Dogpatch neighborhood, which will probably start leasing in the first half of 2014, and Walnut Creek will finish in late 2014. Like many developers, Mill Creek projects rents to keep growing or at least remain steady by the time units hit the market, Fiore said.
Soaring apartment rents are also making buying a more palatable alternative. New for-sale housing, whether condo or single-family, is finally on the upswing. Homebuilders with units ready and on the market have seen brisk sales at their developments, and many say they can’t find enough development sites in the core Bay Area. It’s a function not so much of a booming economy but the result of a lack of inventory across the board.
One of the main Bay Area beneficiaries of both the apartment and single-family resurgence has been the East Bay city of Dublin with more than 600 apartments under construction near its two BART stations and several hundred new for-sale houses available.
Many condo projects converted to apartments when the market cratered. Now, as rents rocket, developers are thinking about condos again.
It may seem counterintuitive, but while interest in condos in San Francisco is high, buyers have few options to choose from and many developers prefer building apartments hands down to condos.
A major impediment in the past few years has been lenders’ aversion to financing condo projects, while looking more favorably on apartments, but that looks to be changing, according to Paul Zeger of Pacific Marketing Associates.
So far that’s truer in San Francisco than elsewhere in the region.
The good thing about San Francisco is that there’s a number of apartment properties being built that could be converted to for sale,” Zeger said. “There’s also a lot of people who converted for sale units to rental during the bust, so they are motivated to sell those units as prices go back up.”
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