San Francisco-based Simeon Residential Properties is the latest entrant into the Bay Area’s booming multifamily market with two projects set for development in the next 12 months, including a 347-unit high-rise apartment tower in downtown San Jose near San Pedro Square.
Simeon has acquired 72 Townsend St. in San Francisco’s South of Market district. The property is an existing one-story historic brick-and-timber building in the South Beach neighborhood. The company plans to begin construction with Novato contractor West Bay Builders next year to add eight stories to the existing structure. The goal is to develop 74 living units to condominium standards, though the intent at present is to rent.
“The condo market today in SoMa is very hot, and pricing has increased dramatically on a per-square-foot basis. Pretty soon it will make more sense to sell versus rent, but right now we are committed to renting,” said Russell Pitto, chairman of Simeon.
Market rents “clearly justify the cost of the project,” he said, and condo sales “in the heart of SoMa” are in the range of $750 a foot to $1,000 a foot.
The existing, not quite 30,000 square-foot building, the former Hooper’s South End Grain Warehouse constructed in 1874, is leased through mid-2013, Pitto said, but there is a chance the tenant will exit early. If so, he would and could start construction immediately: “We could pull a building permit right now.” The project is fully entitled.
The company plans a definitive decision on whether the units will be for sale or rent before breaking ground. Construction including demolition work, renovation of the existing structure and new vertical development is expected to take no longer than 20 months. He declined to give an estimated project cost.
Average apartment rents in San Francisco have climbed from $2,219 in the first quarter of 2010 to more than $2,660 in the first quarter of this year, with the bulk of the climb coming in the four quarters ended in March, according to market researcher RealFacts. Rents for some unit types, including one-bedroom-one-bath and two-bedroom-two-bath apartments, rose 20 percent in the last year alone.
Meanwhile, Simeon expects to begin construction late this year or early next on a 21-story high-rise apartment building in downtown San Jose, Pitto said. Originally conceived as condominiums, the project is being “reprogrammed” as apartments, he said. It is located in downtown’s San Pedro Square district, an historic area with a cluster of restaurants and the newly built San Pedro Square Market.
Pitto said he was not at liberty to give additional detail.
The project’s description matches that of The Carlysle, a venture of San Jose-based Barry Swenson Builder located at 81 N. Almaden Ave. in downtown San Jose adjacent to the San Pedro district.
The property’s historic address was 76-90 Notre Dame Ave., according to public records. It is next door to two of San Jose’s best-quality office buildings, 225 W. Santa Clara St. and 10 Almaden Ave., both of which are owned by Equity Office Properties, a Blackstone Group LP company.
It is also close to the historic Hotel De Anza, a 1930s-era art deco-style high rise originally built by Carl N. Swenson, Barry Swenson’s father, and rehabilitated by Barry Swenson Builder in 1990. The Axis, a 22-story condominium building completed in August 2008 with 329 units, is also nearby. Two hundred nine of its condominiums are sold and another 15 are under contract, according a June report by the Polaris Group on the Silicon Valley condo market.
According to records on file with the city of San Jose dated July 3, Green Valley Corp., which does business as Barry Swenson Builder, is seeking an adjustment to an approved site development permit to covert a proposed 347-unit mixed-use residential tower from a condominium to apartment use at 81 N. Almaden. The 1.25-acre site is currently occupied by a parking lot and warehouse.
Pitto practiced law in Silicon Valley for 13 years beginning in the early 1970s. “I was always interested in helping to stimulate downtown into a 24-hour city and decided that there was some opportunity here for us,” he said. “I have always believed downtown San Jose has a strong potential for a strong multifamily market.”
The company sought to buy 360 Residences, which is also in downtown San Jose, he said. The project was a high-rise condo tower that was converted to rental use. Chicago-based Capri Capital Partners LLC bought the project this spring for $118 million, accepting a yield, or capitalization rate, of 4.2 percent.
“I believe it is time,” Pitto said. “Hopefully we will see the A’s here. I think there is an opportunity to create a much denser living opportunity.”
Santa Clara County’s average rents climbed from $1,513 in the first quarter of 2010 to nearly $1,860 in the first quarter of this year, according to RealFacts.
Calls to the city of San Jose and Barry Swenson Builder were not returned.