Square Feet

Tenant-Landlord relationships in San Francisco can often be “delicate”, particularly in rent-controlled buildings, but I just read a story in the SF Chronicle which is astounding, to say the least.

The story is that a pair of 33-year old landlords purchased a building, began the eviction process, and when things didn’t go entirely their way, a chemical imbalance caused them to completely lose it. They allegedly cut the electricity, cut phone lines, sawed a hole in the apartment floor, and even went so far as to remove beams supporting the apartments floor. The story doesn’t end there, the landlords were also accused of breaking into the tenant’s apartments to steal possessions and using ammonia to damage the tenant’s clothing and electronics.

You can read the entire story here. Simply amazing. If there is one thing Landlords and potential landlords in San Francisco need to understand, it is rent controls and the power tenants wield in that city. The city offers free legal aid to tenants, a legal system (jury) full of renters, and a very tenant-friendly rent control board.

While debt markets are facing some turbulence, the secondary market for Conforming Loans (those under $417,000 for single-family dwellings) is still healthy giving providing prospective homebuyers with readily available loans at attractive interest rates. For mortgages above this threshold however, lending rates are not only higher but borrowers also face more stringent requirements.

For many parts of the country, $417,000 is a relatively high threshold relative to residential real estate prices meaning most loans will qualify as a conforming loan. In Silicon Valley however, $417,000 does not go very far. In July, the median sales price for single-family homes in San Jose was $769,000 - a number which pushes most mortgages beyond the Conforming Loan limit into Jumbo Loan (those loans above $417,000) territory.

The higher rates and more stringent lending standards results in a decrease in the number of buyers for these more expensive homes. The result is an increase in demand for rental properties as fewer buyers are able to qualify for the loans they need to purchase making multi-family a segment commercial real estate investors should play close attention to.