RealEstateNews 7.7.25
Weekly News Roundup
- San Francisco Housing Booms with AI
- New York Office Conversions Under Threat
- Mortgage Refinancing Surge
San Francisco Housing Booms with AI
While San Francisco has long been associated with an elite housing market, the City by the Bay has reportedly seen a resurgence in home sales thanks to a booming technology: artificial intelligence. The city’s connection to Silicon Valley, combined with the recent upswing in AI startups, means that San Francisco has once again positioned itself at the forefront of the luxury home market.
This has led to a renewed boom in the city’s luxury market and “more homes sold above $20 million in San Francisco in 2024 than in any other year in history,” Sotheby’s Chief Marketing Officer Bradley Nelson said to Bloomberg. Most notable was a purchase by Laurene Powell Jobs, the widow of Apple cofounder Steve Jobs, who “paid around $70 million for a San Francisco mansion, setting a record for the California city,” said The Wall Street Journal.
Given that AI looks primed to dominate the tech market for the foreseeable future, many such buyers are also working to one-up each other by “pouring millions more into multiyear, custom renovations, setting clear intentions to take up residence in the city,” said Robb Report. Source: TheWeek
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New York Office Conversions Under Threat
Turning Manhattan’s unloved offices into apartments is becoming a profitable venture. That potentially unlocks a new source of supply for New York City’s crunched housing market. It also presents more opportunities for the private-equity firms and family offices who typically invest in these projects. A possible hitch: last week’s mayoral primary victory by Democratic candidate Zohran Mamdani, who wants to freeze rents on the city’s roughly one million rent-stabilized apartments.
In theory, that shouldn’t affect office conversions because these are new units coming to market. Around 16% of New York City’s office stock is empty, versus 1.4% of its apartments. And turning those old workplaces into homes is starting to make more financial sense. A big reason is that owners of distressed offices are getting more realistic about what these buildings are worth. Some buildings can now be picked up for 20 or 30 cents on the dollar compared with their peak valuations. But rent freezes complicate things.
The conversions typically take advantage of a tax incentive that gives them a 90% property tax exemption for up to 35 years. To qualify, 25% of the apartments in a conversion have to be rent-stabilized. Developers can currently pick up old offices in Midtown Manhattan for around $300 a square foot, and spend another $450 a square foot or so on the conversion, architecture fees and permits. Then, top-notch conversions can sell for upward of $1,000 a square foot, according to Richard Coles, founder of real-estate investment manager Vanbarton Group. A rent freeze on 25% of the units would make it much harder to flip converted apartment buildings to investors at that price. Source: Wall Street Journal
Mortgage Refinancing Surge
Redefin reported that new listings fell 1% year over year during the four weeks ending June 29, the first decline in nearly six months, with would-be sellers taking notice of slow demand. But it’s worth noting that the weekly average mortgage rate fell to 6.67%, its lowest level since early April. This led to a surge in refinancings with current homeowners seeking savings.
Applications to refinance a home loan rose 7% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was 40% higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, decreased to 6.79% from 6.88%, with points falling to 0.62 from 0.63, including the origination fee, for loans with a 20% down payment. Source: CNBC, Redfin