The Burlingame Voice

Plenty of SF Office Space Available

If you are like me, B'game is the center of your universe.  It's also pretty much the geographic center of the "Bay Area".  I use the quotation marks because "Bay Area" sometimes refers to some pretty distant places--all the way to the Delta.  But from where we sit, the two biggest commercial centers-  EssEff and Silicon Valley--bookend us precisely.  The Wall Street Journal is keeping an eye on commercial space in both places and the headline is San Francisco's Office Market Cools as Startups Retreat.  Here are a couple of data points

For the past decade, San Francisco has outshined Silicon Valley in attracting new technology firms, entrepreneurs and younger employees, who tend to prefer the city’s lifestyle and attractions to the suburbs.  (Note:  we shall see how long that lasts)

Now, that trend shows signs of reversing. Office demand has been falling in both markets, as the coronavirus pandemic, slowing economy and the early success of work from home have caused firms to reconsider office use. But San Francisco landlords have suffered more than their Silicon Valley counterparts in nearby cities such as Palo Alto, Menlo Park and Santa Clara.

Commercial real-estate firm CBRE Group Inc. said the volume of tenants looking for space has fallen about 56% in San Francisco, compared with about 32% in Silicon Valley, between the end of February and the end of May.  San Francisco now has the highest sublease availability in the country, with about 30% of the available space in the city being listed by tenants, according to data firm CoStar Inc.  “It’s likely sublease space will continue to flood the market in the year ahead,” CoStar said in a report.

The piece goes on to make the point that Silicon Valley is more stable due to less reliance on startups and more on larger companies with better balance sheets.  My limited chats with people working for Valley companies jives with the market chatter that says "Hey, this working at home thing is pretty good".  I think the trend is solid and will result in some changes to the B'game residential profile.  More on that in the coming week. 

Prop. 13 - Who's Getting the Shaft?

News reports indicate that the "split roll" initiative to split commercial Prop. 13 tax policy from residential policy has submitted enough signatures to be on the November ballot.  I guess we should be thankful that California law about new taxes says it has to go to a vote of...the people instead of just the politicians.   The whole Proposition proposition is a mess, but that is a discussion for another day.  This day we have to assess whether reevaluating the market value of commercial property on a frequent interval and taxing it accordingly is a good thing or not.

I touched on this after hearing our assumed new state senator, Josh Becker, throw his weight behind the idea here.  But is there more to the story?  And does the hidden story involve the Law of Unintended Consequences?  Care to guess?  Well, the Law of Unintended Consequences is a bit like the Law of Gravity.  The SacBee, no enemy of new taxes, just reported this interesting consequence:

County tax collectors are reiterating their opposition to a proposed “split roll” initiative that could raise tax revenue from commercial and industrial property, calling the measure “problematic” and difficult it to implement.  The California Assessor’s Association in a letter to lawmakers says tax collectors don’t have the resources to execute the plan, which calls on them to more frequently assess commercial properties worth $3 million or more.

“In my opinion, the property tax measure as written will be impossible for assessors to implement — not just difficult but impossible,” Santa Clara County Assessor Larry Stone said.

Assessors project the changes would cost just over $1 billion to put in place over three years, and would “overwhelm” county assessors’ capabilities.  For example, according to an attached analysis commissioned by the Association, Santa Clara County would experience a 12-fold increase in the number of commercial and industrial properties it reassesses annually.   “It is expected that similar increases would result in all counties,” the analysis states.

While we might have sympathy for all the tax collectors having to massively grow their empires to implement the law, what about the people paying these new taxes?  Most people who have never rented a commercial space or run a small business don't know how that world works.  That apparently includes our next state senator.  The term to learn is a "triple net lease".  I'll let Wikipedia explain it here.  If you don't know what it is, you have no business voting for this initiative.  Suffice it to say the very same shop owners and restaurants that I have been fretting about (more than usual) for the last two months are the ones who would get shafted by this ballot initiative.

You are going to hear a lot about the budget shortfall, the evil commercial landlords who have been skating by for years, the school budget cuts and whatever else gets thrown against the wall in hopes it sticks.  Now is the time to understand who will actually be hurt by the latest tax grab.   Full disclosure:  I do not now, nor have I ever owned commercial property.  That doesn't mean I don't recognize a train wreck in the making.

Single-Family Homes Need Single-Family Zoning

The Wall Street Journal and the NY Times are both reporting that people all of sudden want out of dense city living and are on the hunt for single-family homes in the suburbs.  We talked about that and the associated turn away from mass transit here a month ago.  But it's not just the national media reporting generally.  Our very own high-performing realtor, Raziel Ungar, is seeing much the same thing right here in B'game as he wrote this week

It's been an adventurous week in real estate - from what I've seen, things are heating up. Two homes in Burlingame that were well priced, move in ready, and in excellent locations, had five offers each on them and sold multiple hundreds of thousands over asking. I've had more inquiries in the last few weeks from buyers living or renting in San Francisco than I can remember in a concentrated period of time; naturally, many people who may or may not have considered the peninsula, Marin, or the East Bay have placed moving to the suburbs to a home and a yard towards the top of the list. An article in yesterday's New York Times called Coronavirus Escape: To the Suburbs detailed in more detail what I have been experiencing as well.

The Journal's take on the trend is that it's not just buyers.  Renters are feeling the same need

Wall Street’s wager on high-earning suburban renters is paying off, and it is raising its stakes.  Investors are flocking to America’s mega landlords, drawn by signs the companies that emerged from last decade’s foreclosure crisis owning huge pools of rental houses are weathering the economic shutdown far better than feared. Many also expect that the coronavirus pandemic will make suburban single-family homes both more desirable and more difficult to buy for even the relatively well-heeled.

Share prices of the largest home-rental companies, such as Invitation Homes Inc. and American Homes 4 Rent, have outpaced the broader stock market since they and the S&P 500 bottomed in late March. Invitation is up 57% since then and American Homes has gained 36%, compared with the S&P 500’s 31% climb.

Perhaps you also saw the SF Comicle piece about people setting home offices in tents in their backyards to get some more private workspace.  You can only do that if you HAVE a backyard.  So the question is will the city continue to fight to protect single-family zoning, will the state bureaucrats get drawn into more pressing matters than ruining neighborhoods and will the development industry respond?  One of the rare silver-linings of the Covid-19 upheaval is according to Zumper "It seems rents for studios through 2 beds in Burlingame have seen large month-over-month drops between 5-7%".  Anyone care to guess whether or not rents would be coming down now if we had rent control in place?

Office Growth Drives Housing Demand, Duh.

It's generally fun to poke fun at EssEff politics, but this Election Day brought a rare instance of sanity out of EssEff voters.  As the Chronicle reported

Also winning was Proposition E, which will limit the amount of office space San Francisco can allow each year if the city fails to build enough affordable housing, based on targets set by the state.  The measure, which needed a simple majority to pass, was leading 54.54% to 45.46% — 130,736 to 108,983.

Prop. E was sponsored chiefly by Todco, an organization that operates and advocates for affordable housing in San Francisco, and its executive director, John Elberling.  Jon Jacobo, Todco’s policy director, said in a statement that voters “have shifted the paradigm of San Francisco. They have declared that we prioritize affordable housing before office development, and that is now the new norm in San Francisco.”

This move won't be a panacea nor will its impact be felt immediately.  In fact, a number of other crosswinds like the macro-economy, availability of leading edge skills, and the perception of quality of life in the Bay Area will all drive the influx or exodus of people.  Over the course of the last 20 years of my professional career I hired, or attempted to hire, dozens of professionals and admin staff into the Bay Area.  It's always been expensive and attractive, but re-balancing the availability of commercial space with residential space should help just a bit with the cost.  One wonders why it took a Proposition to do this in SF and why it isn't happening in other hotbeds like Mountain View or RWC instead of the futile rent control measures?

Banning Natural Gas in B'game

With several study sessions under their belts, the City Council is moving towards a ban on natural gas for new developments in town.  We first heard this out of Berkeley and discussed it last July here.  As the idea moves closer to home (the Daily Journal wrote it up here), I have some thoughts that I have just shared with the council via email.  Here is my letter

Dear Councilmembers,

I am intrigued by the discussions regarding banning natural gas hook-ups in future Burlingame developments including commercial, multi-family and single-family residences.  It strikes me that perhaps the councilmembers who support such a ban should lead the way in this change.  I suggest that each councilmember take the initiative to change out the gas appliances in their own homes first.  The community should be provided insights into both the capital and operating costs of this change.

It would be enlightening to understand the relative costs of electric furnaces, water heaters and high-end electric stoves and fireplaces that meld with typical Burlingame design aesthetics.  Similarly, if any councilmember has a pool or outdoor hot tub, it would be good to understand the options available to heat these amenities.  I can foresee some potential changes and additions to our existing building codes that might be revealed by councilmembers’ changeover projects.  Understanding these changes first would save residents and developers time and money as well as bringing our building inspectors up to speed.  The need for 220V power in many more home locations as well as the need for battery back-up and potentially back-up generators (with appropriate fuels if available) should be examined and shared with the community.  In my nearly 30 years living in Burlingame, I cannot recall a single natural gas outage, but electrical outages are frequent and not likely to improve in the mid-term future.

Lastly, we should all be provided with actual operating cost comparisons for the newly refurbished homes.  If these changeovers could be finished by next winter, a six-month cost comparison for the colder months of October to March would be ideal for assessing the true impact on Burlingame residents.

I look forward to the Council’s leadership on this important issue.

Sincerely,

Joe Baylock

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I'll let you know what I receive in the way of responses. 

  

School Bonds...And Then There Were 3

For the first time in more than 20+ years, I've been contemplating whether or not to support a B'game school bond measure (Measure O) and the SMUSHD Measure L.  Over the last 20+ years it's been a no-brainer to vote "yes" and to further support the schools with donations and charity auction donations and bids.  Parcel taxes and bonds for the local schools are the most local taxation we have and local is good.  In reading the full text of Measure O, my concern was the last bullet point on the Project List 

Workforce housing to increase accessibility for District employees to quality, affordable housing

I decided to check in with Superintendent Maggie MacIsaac about any housing plans and she brought Board member Davina Drabkin into the conversation.  Davina and I had a good conversation about the pressures the district is feeling to retain staff including credentialed staff in key areas like math.  Here are a couple things that came out of that discussion

• There is no pre-allocated portion of the $97 million for housing.
• There are a number of models being tried elsewhere (subsidies, partners, build to suit, etc)
• The Board included the language in order to be able to spend money on studying the issue
• Unlike some Districts, B'game doesn't have land available for any sort of build project and is unlikely to be able to buy it

As a former analyst, I also want to look at the metrics that might point to the severity of the problem, so Maggie was kind enough to provide the teacher turnover (not counting retirements which don't fit the problem) over the last 12 years which are

• Year        % Certified Staff Turnover
• 2007/2008             8.7%
• 08/09                    4.4
• 09/10                    10.6
• 10/11                    9.8
• 11/12                    7.6
• 12/13                    14.4
• 13/14                    12.2
• 14/15                    15.1
• 15/16                    13.8
• 16/17                    16.6
• 17/18                    12.25
• 18/19                    13.3   

There are a lot of factors that go into teacher turnover, but you can say there is a slight upward trend to the data.  There are also a number of non-District-driven projects that might address the housing issue-- the city project on Lots F&N, the stunning amount of building going on it town with affordable unit components, and the possibilities of additional teacher compensation that might not involve millions of dollars of debt.  Of course, the stunning amount of building will only exacerbate the school budget problem. The real challenge for Measure O and L is that a state Proposition, crazily listed as 13 that I'll just call the New Prop. 13, is also on the ballot for $15 billion.  As the Chronicle reported today

The largest school bond in state history, at $15 billion, is going to voters in March as supporters try to put a dent in a $100 billion backlog of failing boiler rooms, leaky roofs and new construction projects needed at K-12 schools and universities.

Proposition 13 — unrelated to the same-numbered 1978 tax measure — was placed on the ballot by the Legislature with bipartisan support.

Supporters, which include the education establishment as well as the construction industry, would allocate $9 billion to K-12 schools, $4 billion for California’s public universities and $2 billion for community colleges.

The prospect of voter fatigue is very real-- I am hearing it all over town.  So I'm still contemplating how I will vote, but I feel a little better having some information that I didn't have before.  Hopefully you are too.          

Josh Becker: Prop. 13 in Danger...All of it

I had an opportunity to hear State Senate candidate Josh Becker speak this week at a neighborhood meet and greet.  These are always interesting grass roots events and the Q&A can be enlightening beyond what one can read about a candidate in the papers.  I got just that sort of insight about Becker regarding Prop. 13 and what is known as the "split roll".  The split roll initiative would remove the tax protections on commercial properties in an effort to address the fact that they do not sell as often as residential properties and hence do not get reassessed as often.  Back in August, the proponents of split roll reworked their initial proposal:

The Schools and Communities First campaign, backed by the state's largest public labor unions and civil rights groups, will formally announce plans to refile the initiative later today. The changes include “improvements to implementation dates, expansive new small business tax relief, clarified education financing and stronger zoning language to ensure large corporations cannot avoid reassessment,’’ Tyler Law, a spokesperson for the campaign, told POLITICO.

Becker noted he backs the revised split roll initiative while noting he had not reviewed the final revisions to the text.  If those revisions offer some protections to "the corner grocery store" he would support it.  But Mr. Becker did not stop there.  Without being asked, he felt the need to go even further and suggest that the residential protections might also be reduced.  After noting that the original intent of Prop. 13 was to protect seniors, those on fixed incomes and lower income homeowners from escalating property taxes, he suggested that a move to remove those protections could be supplemented by "some sort of escrow account" that would hold the higher tax liabilities until the property changed hands at which point the seller would use some of the proceeds to pay the deferred taxes.

This is exactly the sort of stealth attack on Prop. 13 that groups like the Howard Jarvis Taxpayers Association warn about with the split roll initiative.  The complexity of it all, especially for seniors, boggles the mind.  Who sets these escrow accounts up, figures out the balances every year, applies some sort of interest rate to the balances, and adds the paperwork to an already endless pile of paperwork one gets during closings?  For me the real kicker was that Becker said all of this after earlier thanking those of us in the room who were paying the top 14% California income tax rate............

 

David Chiu: Robbing Hood Rides Again

From today's SF Chronicle article, here is the latest proposal from my second least-favorite Progressive Fascist:

SACRAMENTO — California homeowners with big home loans and vacation properties would owe higher taxes under new legislation to raise money for programs to get the state’s homelessness crisis under control.

The bill by Assemblyman David Chiu, D-San Francisco, would cap a state tax break for mortgages to the interest paid on the first $750,000 of a loan for a primary home. It would eliminate the deduction altogether for mortgage interest on second homes.  Chiu’s office estimates the changes would bring in $400 million to $500 million per year, which would be set aside as dedicated funding for shelters, permanent supportive housing and other homelessness services.

“These are the individuals who own the most expensive homes in California,” Chiu said. “It’s a small price to pay among a small number of wealthier homeowners to establish a permanent fund for homelessness prevention.”

I'll bet Chiu was at the front of the line to criticize Trump for limiting the State and Local Tax deduction on one's Federal taxes to $10,000 per year, but that won't stop Robbing Hood from doing far worse damage to California taxpayers.  "It's a small price to pay" especially if he doesn't have to pay it.

"Nimby's" Win One

I am enjoying the gnashing of teeth I hear from the SF Comicle and various other development addicts and so-called affordable housing advocates over the recent court ruling in favor of the city of San Mateo and its well-established building code.  Judge George Miram is leading the race for Person of the Year as the Daily Journal reported

An effort to take legal action against San Mateo for the City Council’s decision to reject a proposal to build a 10-unit condominium building off El Camino Real in 2018 hit a stumbling block earlier this month when a judge ruled the city did not violate the Housing Accountability Act when the council denied the project’s approval based on height differences between properties.

City Attorney Shawn Mason has alleged the city’s decision regarding the project near El Camino Real and West Santa Inez Avenue is defensible because the proposed development objectively violated the city’s multi-family design guidelines aimed at smoothing height differences between properties with transitional features, such as setbacks.

“This court finds that the city of San Mateo is a charter city whose charter fully incorporates the home rule doctrine and that the approval of the instant residential housing project is an appropriate exercise of municipal affairs,” wrote Miram in the denial. “Furthermore, this court finds that to the HAA is unenforceable to the extent the HAA conflicts with or purports to disregard otherwise enforceable portions of the city’s Municipal Code regarding review of housing development projects.”

That ruling has set off a firestorm of criticism from the housing fascists who want the biggest, cheapest, densest buildings built the fasted wherever some developer can acquire a lot.  The Gavinor is apparently one of them now along with all of the usual suspects.  The SF Comicle followed up its "news" piece titled "Ruling may undercut law on housing: Judge says San Mateo can ignore California statute" with an editorial today that starts and ends with some gibberish about "objective standards" that show a crisis--one that they help manufacture with a steady stream of name-calling, narrowly-edited statistics and a refusal to admit the basic economics of bad policies like rent control.  And yes, I do realize I am fighting fire with fire on the name-calling.  Bottom Line:  We should be thankful there is at least one judge willing to reinforce the obvious and stand up for local control.

P.S. If Laura's comment on the Lyon Hoag Emergency post is accurate (I have no reason to doubt her) and the developer has scratched that approved project at Bayswater and Myrtle  perhaps the development addicts will realize over-in-filling the Peninsula is even more complicated than they think.  Anyone care to speculate on whether the latest rent control statewide law or the return of even more stringent ones next election may have played into the decision?  Here's the now empty Hower Auto lot.

B'game (and H'borough) Are #9 in Real Estate Value

Remember the days when a healthy and growing real estate market was viewed as a good thing?  Before the envy merchants started hogging the headlines?  Me too.  So let's just note that 94010 is healthy and growing.  The Chronicle piece on Bay Area median prices puts our burg and the one "up the hill" that we share 94010 with at #9 in the Bay Area and #19 in the nation.  The median price thus far in 2019 was $2.63 million and the article notes we get a boost from the H'borough prices, but from what I've seen many sections of B'game are on par with sections of H'borough as people appreciate the walkability and bikeability of being close in.  But somethings don't just go up all the time though.

Although the Bay Area continues to dominate the PropertyShark rankings, it hasn’t been immune to a slowdown in housing prices. Of the 46 Bay Area ZIP codes that were on its list both this year and last, 25 went down in price, 19 went up and two were unchanged, according to a Chronicle analysis.  In a separate report issued Monday, the California Association of Realtors noted that the Bay Area has posted year-over-year price declines for nine consecutive months and 10 of the last 11.

Linking two rankings together we can also look to the San Francisco magazine annual Top 100 realtor rankings by sales where B'game is well-represented:

1            Stanley Lo        $304M

8            Phil Chen            $169M

30            Raziel Ungar        $100M

38            Jim Arbeed        $93M

39            Sandy Camaroto    $93M

67            Mike Bohnert        $72M

There is no telling what 2020 will bring, but with interest rates staying quite low, but not dropping from here and demand up, up, up the real question remains "Where will the water come from to supply all the new construction?"