The Burlingame Voice

Building more vacant office space?

Some dots are so obvious to connect that it's child's play.  Take for example all the office building going on up and down the mid-Peninsula.  One wonders what the developers are thinking.  A big dot was publicized last week in Mountain View per the Merc:

MOUNTAIN VIEW — A lender has seized through foreclosure a South Bay tech campus once touted as an “exquisite” property in fresh sign of the economic troubles facing the Bay Area office market.  The office campus, located at 350 and 380 Ellis Street in Mountain View, was seized by an affiliate of KKR Real Estate Finance Trust, which is managed by New York City-based investment behemoth KKR & Co. Inc.

The $120.6 million that KKR invested to buy the tech campus is a jaw-dropping 66% less than the $357.6 million that an alliance of investment behemoth Goldman Sachs and Bay Area real estate firm TMG Partners paid in 2021 to buy the office complex.  The Ellis Street tech campus is now worth just one-third of its value at the time Goldman Sachs and TMG bought the property almost exactly three years ago.

I did business with clients in those buildings for years.  They are nice spaces (probably "Class A" but I'm no expert).  I just know they have a great location compared to many others in Silicon Valley.  And they lost 2/3 of their value in three years. The dot begging to be connected is this building below on Old Bayshore in dear Old B'game.  It's just one of several in progress as materials and labor costs jump and interest rates stay sticky at about 7%.  It will be a nice space as well with a giant parking garage on the left.  But will it be vacant for a while...or longer?  There are more Bayfront spaces lined up for redevelopment--the Hyatt Cinema is looking ready to fall down by itself.  At least the Broadway-California intersection is getting fixed.....wait, what?

Connecting the Density Dots

Sometimes connecting the dots is hard--other times it's pretty easy.  Last week's connection was pretty easy.  The Chronicle ran two pieces on density, but no one there connected the dots so let's do it here.  The front page piece was "Density" cited in canceled policies".  It noted property insurers consider two flavors of density--how closely packed together houses are and how many policies any one insurer has in an area.  Both are causing the insurance crisis in California to spiral up.  Insurers don't like the risk of a fire in one house jumping to its neighbors.  And they realize multi-family means multi-kitchen, etc.  So "you're canceled".

Two pages later there was a headline "Court rules lawmakers can override local housing limits"--to force more, you got it, density.

Limits on housing density approved by local voters can be overridden by lawmakers, a California appeals court ruled, upholding legislation that was intended to encourage construction of small apartment buildings.  The law, SB10 by state Sen. Scott Wiener, D-San Francisco, allows city and county governments to authorize new housing with up to 10 units in some urban areas, including those near transit, without conducting environmental studies.

“The housing shortage is a matter of statewide concern,” and SB10 is “reasonably related to addressing that concern,” Justice Brian Hoffstadt said in Thursday’ 3-0 ruling, which upheld a judge’s decision.Hoffstadt cited previous legislation aimed at addressing the shortage of affordable housing, starting with a 1965 law that required local governments to adopt long-term plans to promote adequate housing.

You read that right.  This has been an issue since 1965.  Why?  Because it's always going to be an issue.  You cannot outbuild the global demand to live in the Bay Area--unless you make it notably less livable vis a vis water, traffic, grid stability, crime, street parking, et al.  Those are symptoms of density.  Some stupid judge can't change that, and neither can the legislature.  If you live next to a project that is building three, four or five units on a 5,000 square foot lot and you lose your insurance coverage, will you have a cause of action?  Against whom?  The state?  Good luck with that.

And if you are thinking insurers can't or won't cancel you, think again.  No explanation required.  They could easily use housing density as the deciding factor in where to reduce their policy density.  The Law of Unintended Consequences will not be denied.

Squatter zoning restrictions being studied for B'game

In a proactive effort to get ahead of the burgeoning trend of squatters taking over uninhabited residences, the Burlingame City Council has asked staff to quickly assess which sections of town should be zoned for squatting.  Staff has been asked to assess whether the zones should be patterned after the new city council districts, the elementary school districts or the zones for legal leaf blowing on a particular day of the week.  There are legal guidelines for squatters to follow as shown here:

Squatters’ rights, also known as “adverse possession”, refers to laws that allow a person to gain legal ownership of a property they have occupied without permission from the legal owner. In California, squatters can make a legal claim to own the property they are occupying after residing there continuously for 5 years. 

Squatters differ from trespassers, in that trespassers occupy a property illegally but make no claim of ownership or legal right to live there. Squatters, on the other hand, occupy the property without permission but may be able to gain legal rights if they meet the criteria for adverse possession.

With the recent arrest of a squatter at the Burlingame train station master's quarters after flying below the radar for several years, the city council felt some urgency to codify which sections of town should and should not welcome squatters.  Enhanced surveillance of the no-squat zones would preclude the 5-year window from opening.

State Senator Scott Weiner immediately attacked the proposed ordinance as "knee jerk NIMBYism of the first degree" and promised to introduce legislation in Sacramento to prevent local governments from reducing the squat-friendly housing supply in the name of fairness and equity.  Weiner did not rule out including affordable squatting requirements based on income and reduced gas and electric rates for young, first-time squatters. 

Real Estate: "The death of the 6% commission"

There is big news in the real estate market after a legal settlement on Friday.  The Journal squib reads "Home buyers and sellers are experimenting with new models to compensate agents after the death of the 6% commission in a settlement with Realtors".  In much of the country this will be more like small-to-medium news because homes are cheaper elsewhere.

The state with the least expensive housing market had a median price of $229,000 in September 2023, according to Redfin’s monthly housing data. The priciest was almost 3.5 times as much at $787,000.

The $787,000 was for California, of course, but Redfin notes:  "In February 2024, San Mateo County home prices were down 1.8% compared to last year, selling for a median price of $1.5M."   Zooming into B'game, Redfin says "In February 2024, Burlingame home prices were up 35.0% compared to last year, selling for a median price of $2.2M."

Six percent of $229,000 in East Oshkosh is $13,740.  That's the 10% down payment in B'game where the old six percent commission on a $2.2M transaction is a cool $132 grand.  The Journal notes that in some regions:

Some buyers pay their agents directly through a flat fee or an hourly rate, instead of relying on the seller to set a rate. Some sellers offer a lower commission to a buyer’s agent than the currently typical 2% to 3%.  But these nontraditional approaches often mean buyers have to do more work themselves. And sellers who offer lower commissions could find it tougher to sell if buyers’ agents discourage buyers from bidding on their homes.

Starting in July, most home sellers won’t need to make an upfront offer for how much they will pay a home buyer’s agent. That means if home sellers won’t cover the cost of the buyer’s agent, buyers could have to pay their agents out of pocket. 

It will be very interesting to see how this plays out in B'game where Redfin notes the average sale this year took 14 days.  Anecdotally, I see even beat-up R-1 properties selling quickly for more than $2.2M.  Something that sells in two weeks with little or no contingencies doesn't need a lot of commission push behind it.

Backhaus: Sweet introduction

According to the show of hands local realtor Raziel Ungar asked for at Friday's hosted event at Backhaus, I am one of the last people to clue into our newest bakery.  That's probably because most people are having lunch around the time I am finishing breakfast and from what I hear, Backhaus can be sold out by then.  Raziel is one of the most active realtors in town and loves to bring his clients together for events like movies and pie giveaways.  His latest event brought about 100 people to Backhaus for a talk and tasting with co-owner Anne Moser.

Anne gave us the story of how she and her husband Robert started baking at home, then moved to Kitchentown, onward to the B'game Farmer's Market and the CSM market, then to a space on 3rd Ave in San Mateo and now to a larger, more flexible space here at 261 California Dr.  The space was our first movie theater, George Roy's Photoplay that opened in 1913, according to Russ Cohen's article in this quarter's Burlingame Historical Society newsletter.

After extensive, and I mean really extensive, Q&A that Anne handled with ease, Raziel asked for a show of hands as to who had bought bread and pastries from Backhaus at each step of the journey.  When he finally asked for a show of hands as to who was a first-timer on Friday, I was in the tiny minority that raised their hands.  Raziel is a big supporter of Copenhagen as well and his annual pie event at Thanksgiving is a B'game tradition.  Baking sounds like an arduous task since each day starts at 3am so that the goods are ready for the 7:30 opening.  After tasting the Country Bread at the event, I may have to get up early to snag some.  Here's Raziel and Anne making the pitch.

Preservation Gem: "Gee Gee" Bland Platt

Let's end the year with something different in that it's not directly related to B'game.  We highlight the passing of special B'gamers on occasion, but I was struck by the obit of "Gee Gee" Bland Platt that ran in the Comicle this weekend.  You will quickly see why:

On December 13th the world lost a superlative San Franciscan and a remarkable mother, mother-in-law, and grandmother.  In 1963, Gee Gee became Survey Chairman (and later, concurrently, San Francisco County Chairman) of the Junior League's architectural survey, eventually published as Here Today: San Francisco's Architectural Heritage (Chronicle Books, 1968).

Her work on this book led Mayor Jack Shelley to appoint her in 1967 to the inaugural San Francisco Landmarks Advisory Board, on which she served for 13 years, seven as its president. Over 110 buildings and monuments received landmark status in this era, including Mission Dolores, Ghirardelli Square, and the rotunda of the City of Paris department store (still there in its glory at Neiman Marcus on 150 Stockton St). She was infamously fired in 1980 by then-mayor Dianne Feinstein, in what the San Francisco newspapers called at the time the "Black Friday Massacre."

Later that year, Gee Gee went on to found G. Bland Platt Associates, and this firm provided "a wide variety of consulting services to owners and lessees of architectural and historically significant properties and to their architects." Owners and developers of important buildings, once her adversaries, became her clients.

She served on the board of the California Preservation Foundation (CPF) for many years and twice was its president; served on the board of San Francisco Heritage; and helped to set up the California Preservation Alliance, the first preservation political action committee. In 2004-5, she was a leading force in a lawsuit against the developers of the now-defunct Westfield Centre, after the demolition of part of the old Emporium store's magnificent original office tower, which was supposed to have been preserved. The $2.5 million settlement led to the creation of the Historic Preservation Fund Committee, on which Gee Gee served from its inception until her death and which continues to support preservation projects in San Francisco. She was both the "Che Guevara" and the "Mother Superior" of architectural preservation in San Francisco.

That is quite a legacy and one that has added a lot of value for a lot of people who may not even realize it.  Architecturally speaking, a lot of bad stuff happened in the '60's and '70s and on into the '80s.  It coulda been worse if not for Gee Gee.  Many of you will recognize her seminal book--I probably have at least three copies laying around!  RIP Gee Gee.

California Exodus: 2023 version

As we ease into the end of the year, it is a time to reflect on the major trends of the year and assess what they mean for the future.  The elephant in the California room is out-migration, particularly of the people who foot the California tab which is large and growing.  We touched on it in July of 2020 here.  And again in October of 2022 here.  So none of this is news--the news is what little Newsom and the Legislature are doing about it.

State budget analysts recently projected a record $68-billion deficit in the next fiscal year because of a 25% drop in personal income tax collection in 2023. Some city, county and other local taxing authorities, particularly in the San Francisco Bay Area, have also recorded revenue declines.

California is heavily dependent on high earners to meet government fiscal needs. Tax filers in the top 1% of income, earning around $1 million and above, have typically accounted for 40% to 45% of the state’s total personal income tax revenue, said Brian Uhler, deputy legislative analyst at California’s Legislative Analyst’s Office, which estimated the $68-billion budget deficit.

Moody’s Analytics economist Mark Zandi analyzed moves in and out of California for The LA Times using Equifax credit data, to zero in on the age of the movers. He found that since the pandemic in early 2020, California has lost residents in every age group, but by a significant margin the biggest net out-migration came from those 35 to 44 years old.

Pundits on the Left AND the Right (looking at you WSJ) point to restrictive building codes as a key factor, but I think it is way down the list.  In fact, I'll bet a lot of departures are due to the reverse--over-development and all the quality of life problems it brings.  Or the sense that your single-family neighborhood is threatened by the Yes In Your Backyard crew--YIYBYs.  Right behind that are the oppressive taxes on the high earners and the little tricks being played like the Death Tax that slipped through last election.  Pile on the singularly stupid things like fining stores if they don't have a "gender-neutral" toy section or outlawing gas stoves that causes ridicule from friends all over the country and you have a Perfect Storm.

As I said three and a half years ago on the first linked post, this is not likely to change any time soon.  There maybe a Black Swan event at some point but they are intrinsically unpredicted.  All we can do it keep talking/posting about it and hope the politicians wake up to reality.  When the effects of the bad policies noted here finally come home to roost, it may be too late.

Avenews: Pottery Barn closing

B'game has avoided the retail doom loop for the most part.  There are always vacancies on the Avenew and on B'way, but they haven't dulled the sense of vibrancy on the streets-yet.  Now one of the largest spaces on the Ave is going dark as Pottery Barn has announced it will close in January.  The Chron did a piece on the closure and how our store was more than just the average PB:

Malin Kansal, a San Francisco-based real estate agent who worked in Pottery Barn’s corporate office in San Francisco between 2008 and 2012, said that the current “state of affairs” in regard to the retail climate likely contributed to the decision to shutter the Burlingame location.  “As we stand here post-COVID-19, the retail climate is changing so much,” said Kansal. “People love shopping online.”

Kansal said that the Pottery Barn in Burlingame functioned as the “model store” for the larger brand: “They used the store to display and take photographs of the items before the start of the season.”

This will be a test of how strong the Avenew is going forward.  If it needs to be broken in half a la Anthropologie to rent that will be telling.  The new vet at that location, Dr. Treats, is now scheduled to open in January.  Say goodbye to Pottery Barn.

Baywood: Chronicle "skirts" the truth

There are a number of reasons why I call the SF Chronicle the "Comicle".  I might have plagiarized it from Herb Caen decades ago.  There is so much slanted "news" some days that it seems like the whole edition is a comic strip.  Last Thursday, some "reporter" named J.K. Dineen provided the latest example when he/she waded into the San Mateo Baywood happenings around getting historic district certification.  The headline screamed "Effort could skirt state housing laws".  Um, no.  The law (SB9) includes exceptions for historic districts and resources.  You aren't "skirting" a law by complying with what it says.

Dineen kicks the piece off with "A stealth effort to have the state legislature designate one of San Mateo's wealthiest neighborhoods as a historic district could create a playbook for other Bay Area enclaves looking to avoid complying".....blah, blah, blah.  It's only a "stealth effort" if one hasn't been paying attention to our local news.  The DJ must have run a dozen articles on the effort and published a couple of dozen LTTEs.  If one's world view generally stops around McLaren Park then it's "stealth".

Note the coded language--"wealthiest neighborhood" and an "enclave" and "genteel subdivision".  Can "leafy suburb" be far behind?  For some reason, searching the Comicle site for a link does not bring up the piece, but here is the front page.  Can B'game be next?  How will they ratchet up the angst when it's H'borough's turn?

94010: H'borough/B'game #22 in the country

The Merc did a better job of writing up the recent PropertyShark national rankings of median home prices than the Comicle did, so I will link to it here.  It notes

The Bay Area maintains its status as the most expensive metropolitan area in the U.S.  Bay Area ZIP codes made up 37 of the top 100 most expensive ZIP codes in the country, according to a new 2023 ranking by real estate data firm PropertyShark that looked at median sales prices.

In a quantification of the Doom Loop in EssEff, it notes

San Francisco only had three ZIP codes in the top 100 in 2023, a drop from the 13 it recorded in 2019.

Overall the realtor data shows

Across the nine-county Bay Area, median home prices are up 6.6% from last year, reaching $1.3 million in September, according to data from the California Association of Realtors.

Using median sales prices can be deceiving especially when there is the wider spread of prices from our combined zip code with H'borough than some others like Atherton.  And rising interest rates have locked some people into homes that they would otherwise have sold to move.  Nonetheless, numbers are numbers and ours are:

22   94010   Hillsborough/Burlingame   San Mateo County   CA     $3,200,000

Our neighbor to the south was down the list aways:

62    94402    San Mateo        San Mateo County    CA        $2,203,000

The most interesting real estate development in years happened in court a couple of weeks ago when:

A federal jury ruled on Tuesday that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the home-buying process in the United States.

The realtors’ group and brokerages were ordered to pay damages of nearly $1.8 billion. The verdict allows the court to issue treble damages, which means they could swell to more than $5 billion.

It’s a decision that has the potential to rewrite the entire structure of the real estate industry in the United States, lowering the cost of moving homes by reducing commissions. Under a N.A.R. rule, a home seller is required to pay commissions to the agent representing the buyer, which sellers claimed forced them to pay excessive fees to the agents. The home sellers said the brokerages collaborated with N.A.R. to enforce what is called the “cooperative compensation rule.”

But under the verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less.

For the record, 6% of our median $3.2M sales price is a cool $192,000.  Now that is likely to change over the next few years and after the heavy realtor support for Proposition 19 (the "Death Tax") a lot of people will not be the least upset when it does.