Commercial Real Estate Blog

In the San Francisco Bay Area, the closing customs vary from county to county. Some cities also assess a city transfer tax in addition to the county transfer tax. In most areas where the city doesn’t assess a city transfer tax, the county rate is $1.10 per $1,000 in property value. The below shows how closing costs and fees are customary divided in the various Bay Area counties.

Santa Clara County

Seller Pays: County Transfer Tax, Escrow Fees, Title Insurance
Buyer Pays: Recording Fees
50/50: City Transfer Taxes (San Jose, Mt. View, and Palo Alto assess a $3.30 per $1,000 city transfer tax) are normally split 50/50

San Mateo County

Seller Pays: County Transfer Tax
Buyer Pays: Recording Fees, Escrow, and Title
50/50: City Transfer Taxes (San Mateo [$5.00 per $1,000]) are normally split 50/50

Alameda County

Seller Pays: County Transfer Tax
Buyer Pays: Recording, Escrow, and Title
50/50: City Transfer Taxes are normally split 50/50. Cities in Alameda County which assess a city transfer tax are (per $1,000): Alameda ($5.40), Berkeley ($15.00), Hayward ($4.50), Oakland ($15.00), San Leandro ($6.00).

San Francisco County

Seller Pays: City and County Transfer Tax (on sales over $1M, the rate is $7.50 per $1,000)
Buyer Pays: Recording, Title, and Insurance

Contra Costa County

Seller Pays: County Transfer Tax
Buyer Pays: Recording, Title, and Escrow Fees
50/50: City Transfer Tax [Richmond - $7.00 per $1,000]

For the first time since the dot-com era of 1999-2001, inflation rates in the San Francisco Bay Area have increased at more than a 4.5% annualized rate. Many tenants over the past several years have accepted CPI as the determining factor for annual rent escalations. For several years, the CPI method paid off (assuming a 3% floor was not agreed to) since the CPI rose by around 2% annually.

But now, increasing energy and fuel costs have had a dramatic effect on inflation. As a result, the most recent 12-month increase in the Consumer Price Index came in at 4.7%. The CPI index is based on San Francisco Urban Wage Earners and Clerical Workers. Savvy landlords generally utilize this index instead of the All Urban Consumers because it rises faster.

As a tenant, it is always best to fix escalations, particularly when macroeconomic trends point to inflation. If inflation-indexed escalations must be utilized, then it is important to cap the increases under the lease (5% is typical in today’s market, but if inflation continues to rise, then that could go out the window).

The chart below provides a 10-year history of the CPI index for the San Francisco Bay Area.

The Federal Reserve has chosen to leave the Fed Funds Rate unchanged at 2.00%. The Fed also hinted that the rate could stay there for some time, and cited the risks of inflation and slow-down as threats to the economy.

The latest unemployment numbers for the state of California indicate that the rate has jumped significantly from last year. Last June, the seasonally adjusted unemployment rate in the state was 5.3%, June’s preliminary numbers are 6.9%, up a further 10 basis points from May’s 6.8%.

To put in perspective the unemployment rate cycle in California, below is a chart of California’s unemployment rate since 1990:

The CMBA (California Mortgage Bankers Association) released its latest number. The data covered 10,794 properties and found that only 7 were delinquent beyond 30 days. The default rate, .06% is triple what it was last quarter, but still only represents a small number of properties.

In August of 2007, the CMBA Index hit a 5-year low of .03%.

This last quarter’s numbers included $96B worth of mortgages, and the amount of debt which was in default was $54M. You can read this as a tripling of the last quarters numbers, but the fact is that delinquency rate is in fact very low. Consider that during the S&L crisis of the early nineties, some commercial asset classes experienced delinquency rates north of 10%. An the MBA (Mortgage Bankers Association) numbers from late last year showed that 1-4 unit residential delinquency rates were north of 5%, the highest level in over 20 years.