Alvarado St project: Modern Art

7 Replies

Today’s spotlight project is located in San Leandro, near the BART station and near to the downtown. For those of you who are unfamiliar with the geography of the San Francisco Bay, there are three parts to the Bay, the North Bay, East Bay, and Peninsula (I’m ignoring South Bay b/c it’s too far away for this house). The Peninsula includes San Francisco and Silicon Valley, and is home to the most ridiculously-overpriced real estate this side of Manhattan. North Bay is pricey, but car-dominant. The East Bay is where most of the gentrification in the Bay is happening, with the rapid-transit system, BART, being the main engine of growth for people who want a quick commute into their jobs in San Francisco.

Because of BART, Oakland has been rapidly gentrifying, and it’s slowly spreading southwards. In addition, the absolute hottest trend in housing is modern houses. There is next to no supply of modern housing in the East Bay, and anything that looks like a modern house has been snatched up super quickly. HOWEVER, these houses have only really been built in gentrified or rapidly gentrifying areas of Oakland or Berkeley (north of Oakland).

My entire project here is a leading indicator, to take both of those trends that I talked about above, and begin to introduce gentrification to San Leandro, the town immediately south of Oakland. I’m planning on building 4 townhouses (see the renderings below), and building them right next to BART. It’s a wager on the gentrification momentum continuing its inexorable progress, as people who are getting priced out of the safe parts of Oakland want: a) safety, b) BART station and c) a modern house.

We found a lender who will finance the costs of construction (100%!) so the numbers are looking like this: $240K to purchase the land, $1.2 mil to build, resale of $2.3 mil, and finance costs of $200K on our financing. Total profit: $565K, based on an out-of-pocket of $274K

I’m well aware of the dangers of doing a leading project like this, before something else similar has confirmed the viability. Still, there’s enough meat left in these projections that we could walk out of here without a loss, even if we’re well below what we think the market will support. But I’m excited about this—it’s all about getting creative and making some MONEY$$$!

Juan - coming from the East Bay, I think this is super smart and not that risky...they will sell like hotcakes. (I have clients right now whoe want one!) What are the size dimensions of the units? I'm sure there is an optimum, maybe 3/2's at 2000 sf? One question I hadn't thought of for a development like this - how much does it cost to get an HOA going with all the legal paperwork and CCR's?

I'll be interested in tracking this for sure - maybe you can have a good symposium at the end? 

Having grown up in San Leandro, I think this is a great idea.  My wife's been telling me that San Leandro is the next hot place.  A bunch of breweries have opened up shop, making it the next hip place to be.  The design looks cool.  Have you ever considered modular homes or shipping container homes?  Those would fit with the modern feel, as well as attract eager buyers.  Good luck with the project!

Originally posted by @Jonathan Payne:

Juan - coming from the East Bay, I think this is super smart and not that risky...they will sell like hotcakes. (I have clients right now whoe want one!) What are the size dimensions of the units? I'm sure there is an optimum, maybe 3/2's at 2000 sf? One question I hadn't thought of for a development like this - how much does it cost to get an HOA going with all the legal paperwork and CCR's?

I'll be interested in tracking this for sure - maybe you can have a good symposium at the end? 

 I think we're going to end up doing 3/2 2000 sq ft or 3/3s, it depends on what the city gives us final approval for. We were going to do 2 x 2000 & 2 x 1600 to give two different looks, but the city didn't like

Sure, I'll give updates as we go throughout this process! Hopefully we can bring some more modern architecture to San Leandro

Originally posted by @Jeff Tang :

Having grown up in San Leandro, I think this is a great idea.  My wife's been telling me that San Leandro is the next hot place.  A bunch of breweries have opened up shop, making it the next hip place to be.  The design looks cool.  Have you ever considered modular homes or shipping container homes?  Those would fit with the modern feel, as well as attract eager buyers.  Good luck with the project!

 That's what we're hoping for! The one thing that we think might choke off that hipness is if the interest rates go up again, and the Bay just kinda stagnates. 

And if San Leandro gentrifies...good lord, is Hayward up next in the gentrification process?

Hayward?  Hayward is already gentrifying.  A few years ago, I had trouble renting 2-bedroom apartments in Hayward for $1100 or $1200.  Now, I can easily get $1500. In fact, even $1500 is apparently low.   I put one on craigslist and got 50 emails in a couple days!  Thanks to the San Mateo bridge, Hayward is easily accessible to mid-wage earners who can NOT afford the Peninsula.

 One fly in Hayward's ointment is Rent Control.  But that doesn't apply to new construction.  And the rent control here is 5% a year.  It looks like I'll be able to do 5% rent increases every year for the next decade.  And 5% is a substantial increase.   If you have50% expenses, then a 5% increase in gross yields a 10% increase in cash flow.

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