New COPA Law Takes Effect
for Buildings of 3+ Residential Units

Effective September 3rd, under the Community Opportunity to Purchase Act, there are stringent new requirements regarding the listing and sale of SF 3+ residential unit buildings (and lots). Very generally, these entail giving qualified non-profits, a "Right of First Offer" before listing and, under specific circumstances, a subsequent "Right of First Refusal." The San Francisco Association of Realtors has prepared a detailed advisory requiring the Act, which is available upon request.

If COPA were not enough (additional) governmental oversight, the Governor signed AB 1482 into law this week and it will go into effect in January 2020. The Gov is playing this as not "rent control," but "rent stabilization." He obviously missed his econ 101 classes in college.

For non-rent controlled jurisdictions, it will have a big impact. Less so for (already) rent controlled jurisdictions as the state law would not override local rent control laws. However, it would cover units that are not already covered by local rent control laws. Some of the key take-away's:

Annual rent increase cap of 5% plus local inflation
The state law would exempt buildings constructed in the last 15 years (SF is currently pre-1979). That’s a rolling date, meaning units built in 2006 would be covered in 2021, units built in 2007 would be covered in 2022, and so on.
Just cause: the owner of the property shall not terminate the tenancy of a tenant (that continuously occupied a unit for 12 months) without just cause.

You can read the entire bill here: http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB1482

Median Sales Prices by Year in Millions of Dollars

Average Dollar per Square Foot Values

Standard Financial Indicators

12 Months Sales by Building Size & Price Segment

I update the following district table semi-annually, so the one below is from the mid-year report.

Supply & Demand

As illustrated in the next chart, the impending implementation of the new COPA rules, explained at the top of this report, led to a surge of 3+ unit properties going into contract in August in order to avoid having to comply.

The number of 5+ unit building sales in Q3 jumped significantly on a year-over-year basis, matching the highest volume of any quarter in the past 4 years. (Late reported sales may take the total a little higher.)

San Francisco Rent Rate Trends

Rent rates typically track changes in employment more closely than home prices, as rents react more quickly to large increases in hiring or firing. Of course, another major dynamic in the city has been the boom in apartment building construction in recent years - the first such boom in many decades - which has been adding thousands of new units to the market. According to an SF Business Times analysis of the largest projects, there are approximately 3900 new market rate units under construction, which should be ready to lease in the next two years. These typically list at premium rates, but also often offer "special deals" to fill the buildings quickly.

Generally speaking, SF rents peaked in late 2015/ early 2016, but have been working their way back up to peak rates. The dotted line in the first chart below delineates the approximate divergence in rents between a market rate unit and a rent-controlled apartment leased in 2010.