Another New Condo Development Exits Market, Switches To Rentals

Earlier this year, new homes listed for sale at The Quinn were withdrawn from the market after failing to lock in the purchase prices sought by its developer. Reservations had been accepted for approximately one third of its 32 market-rate units since commencing sales in September 2021, only to be cancelled just as the springtime selling season was heating up. As it turns out, the decision to jump ship and reposition the homes as rentals would save it from an uphill battle against skyrocketing mortgage interest rates in the months that followed.

Meanwhile, another boutique South of Market condominium development came on line: Le Centre. the project appeared promising to capture the fancy of first-time homebuyers. Its uber central location in The Hub, its partnership with Bumblebee to curate tech-forward spaces, its introductory pricing below $500K, and its $25K cash to close offering were all fit to make the buying decision easy. All that, and a round of $20K price reductions in April 2022.

It’s precisely buyers at this entry-level price point, however, that are most sensitive to financial volatility. All else equal, a one percentage point increase in mortgage interest rates equates to a ten percent drop in purchasing power. Accordingly, skyrocketing rates from the end of 2021 thru mid-May 2022 have taken an approximately 20 percent bite out of what these buyers can afford.

Alas, on 25 May 2022, the developer of Le Centre decided to halt home tours and switch gears to a for-rent plan.

It’s not uncommon developers to go through the subdivision process and construct condominium buildings while entirely planning to rent those units. This is especially true when the developer has an in-house property manager to oversee their portfolio. At a later date, those homes could be sold off as condos, or the leased-up building could be sold to an apartment operator.

One Rincon Hill Tower Two, for example, opened a leasing office on site upon completion in 2014 despite having been cleared for condo sales. By early 2015 and with rents peaking, the high-rise was approximately 40 percent occupied and in negotiations to sell to a local real estate investment and development company. Two years and a high-end interior design later, the first rebranded homes at The Harrison debuted to buyers — just in time to capitalize on a deluge of newly minted IPO millionaires.

In the cases of The Quinn and Le Centre, planning, building, and marketing for sales, and then pulling out, speaks volumes about rapidly changing demand-side dynamics. That said, rents are on the rise and home prices will follow, historically. We’ll look forward to these two developments retrying sales when San Francisco’s condo market is stronger — and perhaps reappearing at that time with a design redo and rebranding.