Luxury On Discount | A Brief History Of Watermark
After recently securing a deal for a buyer on a Watermark condominium, I became curious about the huge opportunity currently present to buy homes at a discount in the building.
The Watermark (501 Beale Street), a long-established waterfront icon on San Francisco’s Embarcadero, has had bad luck recently: a temporary navigation center has been established next to the building.
A tweet by Mayor London Breed shows the construction of the shelter taking shape toward the end of last year:
Approved in 2019 and now fully operational, the Navigation Center has added an interesting twist into the lives, and home values, of surrounding buildings.
The Watermark, constructed in 2006, has been long regarded as having the best views of the Bay Bridge in San Francisco. Selling units with views warrant an increase in valuation, often to the tune of a 10-15% increase per square foot than an equivalent home without a view. With the recent Navigation Center development, sales are starting to dip in value.
Our recent analysis of a deal on a unit at Watermark shows an obvious and steep decline in value. A home on a high floor with sweeping city skyline and Westerly views was originally listed at $1,595,000 in the summer of 2019, asking $1,414 per foot. The home sat on the market for an unusually long time (135 days) before being pulled off the MLS before Christmas.
The same home recently went into contract for roughly 9% less than its original asking price.
The only explanation for the decreased value is the new Navigation Center, as all other factors remained the same. That is, an exceptional listing agent was managing the listing, it was priced correctly based on unit upgrades, and the views obviously had not changed.
This begs the question: are all home sales at Watermark going to receive a similar discount on 2017/2018 values? That is, prior to the Navigation Center approval.
Opportunity exists in the face of adversity. This is true in sports, politics, investing - and it’s also true in real estate. There is an opportunity at The Watermark for buyers who can see beyond the temporary nature of the Navigation Center.
Navigation Centers in San Francisco typically stay in one place for a period of 2 to 4 years. Over the city’s history, homeless shelters have been almost unanimously unapproved by local residents. Residents forcefully protest their neighborhood being the home of a new shelter with lawsuits and petitions, only to succumb to the fact that eventually, every neighborhood will share the burden and house a temporary navigation center for the city’s growing homeless population.
The irony is that the surrounding areas of local navigation centers are actually cleaner and quieter than those without. The city patrols the surrounding streets, especially near 501 Beale Street, with patrols being heightened in 2020. There is a noticeable security presence in South Beach today, with security patrolling Bryant, Beale, and Brannan, all the way up Main St and The Embarcadero. It is feasible to say it’s almost safer to live in proximity to a Navigation Center than to be a few extra blocks away from one:
Citizens in need of the shelter use it at their own free will. They’re making smarter decisions to use the city’s resources rather than live on the street.
People typically are smart enough to be a few blocks away from a Navigation Centers patrol when using, buying or selling illicit substances.
Security’s #1 priority is to keep the way of life for local residents unaffected by their new neighbors.
With all that in mind, the buyer who can see past the 2 to 4 years of potentially disruptive local noise and behavior (which is all but irrelevant if you live above the 10th floor), there is a significant opportunity to buy a condo in a premium San Francisco building for roughly 10% below 2018 values.
Constructed in 2006, the building does not fall under the statewide rent control laws that mandate a 5% year over year maximum rental increase for pre-2005 buildings. Investors have the opportunity to purchase homes in Watermark, park a tenant in there during the Navigation Center years, then find themselves with a beautifully modern condo in a premium Embarcadero-front building purchased significantly below its value.
The average price per foot in the past 6 months for the 3x condos sold is $1,034.
The average price per foot throughout the entirety of 2017 and 2018 was $1,505.
Public perception dictates value in the real estate industry. Those who have the foresight to see past the current sentiment have the opportunity to build significant wealth.