Like many places in California, San Francisco is in the midst of a major real estate upheaval. When the pandemic struck and a shelter-in-place-order was enacted, many of the city’s tech billionaires and other high-earning residents chose to leave the dense city for the suburbs, or another location altogether. As a result, the geographically tiny city (47.355 square feet in total) saw more inventory on the market than it has in years.
But this type of shift is also providing new opportunities for some potential buyers. Tracy McLaughlin, the director of luxury estates at The Agency and recent author of the new book Real Estate Rescue, saw the drop in prices and jumped at the chance to close a deal on a city condo for herself.
“I’m a total contrarian,” McLaughlin told Inman. “I just bought one because I was thinking, ‘You know, it was on for $3.5M, I got it for $2.9M and it’s the best building in San Francisco. Like Warren Buffett says, ‘When things are down, that’s when you go in.'”
We sat down with McLaughlin to tell us more about buying in a pandemic and what’s in store for San Francisco luxury real estate in the coming months.
Inman News: Let’s start with a question one can spend all day answering. What’s happening with San Francisco luxury real estate these days?
Tracy McLaughlin
Tracy McLaughlin: We clearly have some softening in San Francisco, as a result of the pandemic. People were already dealing with homelessness and extremely high prices. When COVID hit, many just kind of hit a wall and said, “You know what, it’s time to make a change.”
In the luxury market, there have been a lot of people with very expensive homes moving out of the city and, of course, there have been a lot of people with condos leaving for homes with more yard and green space. Specifically, South Of Market has had some real softening because there was just too much supply there.
There is more inventory available than normal. It still isn’t some kind of big discount market that you see in other cities. Because San Francisco is so small geographically, there just is not a lot of developable space. It’s a small city, and there’s no place else left to build so there is always pressure on pricing.
But this is the first time in a good 10-year run that we’ve seen a lot more available inventory and, in the rental market, a lot more negotiations going on with leases.
So where is the luxury buyer who is leaving San Francisco going?
Many of the high-end, high-net-worth clients are choosing to be in other places. They’re going to their second and third homes. It is a tech city, and there are a lot of very wealthy people that have alternatives.
Many are saying, “You know what, I don’t really want to live here for another two or three years. That’s a long enough window so I think I’m just going to go ahead and buy in Marin County or Palo Alto.” They’re either going to their vacation homes or they’re leaving for suburbs like Ross, Belvedere and Tiburon.
It’s creating a new kind of freedom for people and they are jumping on the chance to make a change because, if not now, then when?
For years, people were leaving San Francisco because they were being priced out. But now, as you say, even the few who can still afford it are choosing to leave. Will this last?
I am terrible at prognosticating but I do think that [the current situation] will continue for another year or so. I believe these major cities are going to come back.
When there is such a big disruption with the residential real estate markets, the headache from those occurrences does not just go away on its own. It’s usually a year- or two-long hangover.
I think people will come back around but right now the prevailing attitude is kind of, “Listen, my kids have never had an opportunity to travel with us. They can Zoom from anywhere. Let’s go move over here for a year or so.”
So who is buying condos in the city right now? Those hoping to get a good deal?
Me! As a matter of fact, I just bought a city condo in San Francisco. I’m a total contrarian. I just bought one because I was like, “You know, it was on for $3.5 million, I got it for $2.9 million and it’s the best building in San Francisco.”
Like Warren Buffett says, “When things are down, that’s when you go in.” The city will absolutely come back and the condo will be there when it happens.
Congrats! The decision came from believing that, given how attractive the city is, such an opportunity won’t last for long?
I don’t think it will [last long]. Especially for the better buildings and the better neighborhoods, you don’t have a lot of inventory to choose from. I definitely think that this kind of product will continue to hold its value.
So you see your work as being both in the suburbs and in the city? While many are leaving, the city is also reawakening and drawing in a different crowd?
Exactly. Right now, the sidewalks are filled with all these restaurants, and things are at least a little fun again. This country was so late when it comes to going back to at least some degree of normalcy and it’s only now just happening.
I think that’s going to help people. Going out for dinner, doing something fun in a park, being able to go to a yacht club is going to help save the city.
And of course, San Francisco is great for exercise: hiking and running and windsurfing and sailing. That will start to draw some people back.
It is a city that has always had its successes and its failures. Homelessness and the pandemic both need to get resolved, but we are all hopeful that it will.
