San Francisco and the Bay Area are in the midst of a long period of transition. The city was built on shipping, and the mysterious international feel that comes with being a major port was as much a part of the city’s lore as cheapjack detectives in broken down offices, staring into the fog. Then the Silicon Valley boom changed things. The Bay Area is still incredibly international, but instead of sailors and swindlers, it is home to the best and the brightest, who change the world on a weekly basis. And one thing they have certainly changed is the real estate market.
In both the commercial and home sectors, prices have jumped. Office price per square foot has gone up 14% over the last year. The Hhousing prices have followed suit. This is generally good news for real estate investors, though there are some concerns. With this demographic change has come an attitude change, and San Francisco has become one of the greener cities in America. New regulations about eco-friendly buildings have a great impact on the real estate market. The smart investor, though, should see some great opportunity in this period of flux. Eco-friendly regulations can be a boon for rehabbers and builders alike.
Green Building Laws: Changes and Opportunities
This decade has seen huge improvements in San Francisco’s green building codes. For all its crunchy reputation, the city had actually fallen behind places like Chicago and Pittsburgh. Now, though, city standards are drastically improving.
Energy mandates in San Francisco go on a 3-year cycle. The latest set of efficiency standards went into effect in July of last year, and the impact is still being felt. The next set of regulations will go into effect in 2017. For residential buildings, these regulations cover:
- Air conditioning
There is much more covered, of course. One of the main areas that the codes cover – and will keep covering – is additions and alterations. This is of special importance to real estate investors who are looking for a hard loan to flip and rehab properties. When expanding on a unit of more than 700 sq ft, a rehabber has to take into account standards on things like the U-factor of windows, space-conditioning regulations, and duct systems. This presents a great opportunity for the smart investor.
Turning Challenges into Promises
Some builders might look at these standards and think they are onerous. But when rehabbing, being ahead of regulations is a great idea and an even better investment. Whether for single-family or multi-family dwellings, a green rehab is a cost-efficient program that makes sense. The Multi-Family Executive Council estimates that it only costs between 2-4% more to undergo a full green rehab than just a normal one.
But even then, you may not think it is worth it. Here’s the thing, though – you can purchase a place that, right now, might not even be up to the 2014 standards. This will be less expensive than a house or apartment or condo that is. When rehabbing it, you can make sure it is already living up to the next set of standards, earning your home or MDU green recognition status.
This is a variation on “buying the worst house on the best block”- you look for a street or neighborhood that is improving and purchase property that is far below even the present standards. You then fix it so that it is ahead of the future standards and flip it for a profit.
This is along those same lines, only it isn’t just a neighborhood, but a whole standard of living. When rehabbing in the Bay Area, you have to take into account a lot of things, among which is the desire and need for residents to have smart houses that can interact with their technology. This goes hand-in-hand with eco-technology and green building laws. It is the desire for efficiency. Purchasing an old home or property and turning into something that meets tomorrow’s requirements is a great way to invest in real estate. A hard-money loan can help you – and the Bay Area- secure a more green future.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.