[IMGCAP(1)]SAN FRANCISCO-“San Francisco will take the place of what New York was—a city that was a huge economic driver with the financial sector.” So said Gregory Vilkin, managing principal & president of MacFarlane Partners, a panelist at the RealShare Bay Area conference eventyesterday.“The major driver will be technology and San Francisco will continue to rise in rents both on the residential side and office side.
Vilkin joined other panelists and moderator Steve Duffy, managing director of Moss Adams Capital, on the Town Hall Power Panel at the half-day event held yesterday at the City Club by ALM’s Real Estate Media Group. According to Vilkin—who also recently did an exclusive Q&A on the multifamily sector in preparation of the event—his investment strategy at the moment is “urban urban urban core.”
The world has changed back to city states and is no longer a national economy, according to Vilkin. “It is a regional economy.” He pointed out that his firm is now making its first investments in Miami, when two-and-a-half years ago, his company would have said, “no chance.”
[IMGCAP(2)]As for the investment drivers? Vilkin points to jobs and lifestyle as the drivers, and points out that his company is looking both at residential investments and is also starting to look at office.
Another firm currently expanding in urban is the Swig Co. Panelist Jeanne Myerson, CEO of the firm, pointed out that the firm is “focused on urban infill high-barrier to entry locations–coastal primarily,” adding that they are trying to buy early in the recovery cycle in areas like Los Angeles, for example.
“We focused on several markets that aren’t entirely correlated w each other economically, but have drivers for job creation over time,” she said. “We are good at getting in and fixing problems–whether it is a seismic retrofit or if it has a tenant problem.”
Myerson isn’t the only firm looking for the value-add opportunity. Another value-add investor that is opportunistic was panelist Chris Peatross, president of Swift Real Estate Partners, who is not “urban urban core.” Peatross told the roughly 200 attendees at the event that his company is looking all over the west coast now for deals and is focusing on broken assets.
To add to his rising rent point, Vilkin pointed out that two years ago, when his firm broke ground on a building in San Francisco, rents were approximately $1.25 less per square foot than where they are today—which is north of $5. “We are at a new high and we don’t believe that is where it stops.”
One danger he pointed to, however, in San Francisco specifically, is cost prices on the construction side. “It changes the economics dramatically,” he said. “San Francisco construction business is in danger of constructing itself out of business. I think there will be a lot of buildings on the books that won’t get built.”
But another thing to lookout for, according to Myerson, is overbuilding in the office sector, and the Split Roll Tax discussion, which she said is “dangerous for the industry.” If split roll comes and everything gets marked to market, it will be a huge issue, she adds. “It will be a big dislocation and very negative. It is a messy proposition that will have a huge impact on the CRE industry and it is very dangerous for the office market.”