What Year Is It on Pacific?

Posted by Dave Fratello on Wednesday, December 7th, 2011 at 6:00pm.

Having just reported on the spectacular, and surprising, fall of a west-of-Highland, ocean-view home, we have a similar story to return to in the Tree Section.

2610 Pacific (5br/5ba, 3225 sq. ft.) has not lacked for mentions here at MBC, given that it has logged hundreds of DOM over the past couple of years with multiple agents. It has almost always been considerably overpriced.

You may remember the backstory here, but it's worth a recap. In 2005, one particular investor bought up 3 properties in the Tree Section within a few months – each $2m or more – to serve as rental properties while banking on the appreciation to enhance the investment. This was one.

Instead, something like "reverse appreciation" happened. In 2009, both 2610 Pacific and 3313 Pine, another of the 3 investments, were offered back to the public in an apparent effort to stem the losses. Pine ultimately sold off-market in July 2010 for $2.040m, 10% below its Dec. 2005 acquisition price ($2.265m).  (See "Underperforming Trees" from this February for more.)

But the Pacific property just took a far greater hit.

Acquired for $2.1m in Sept. 2005, 2610 Pacific just sold for $1.499m – a chop of $601k and 28% off the 2005 price. Compounding the situation, Pacific has been vacant for most, if not all, of its 9 months on market this year, meaning no income on this income property.

Obviously, since 2005, the market has changed, but maybe the most significant change despite price drops and a loss of momentum is this: Location matters again. And a nice-enough, customized, sizable newer home like Pacific got downgraded repeatedly for being north of Valley on a busy street.

At about $1.5m, it looks pretty compelling. (Contrast that to our comment from June as Pacific hit $1.799m: "[T]he bad news is: $1.8m for a fairly typical early-oughts spec home on a busy street still doesn't look like much of a bargain.")

At $1.5m, it also looks exactly like 2003.

2610 Pacific was freshly completed in July 2003 when it sold for $1.449m.

It's rare to see a home trade in 2003 territory in MB, but that's another measure of the change in location value as a factor since the bubble years.

Seeing the value in 2011 nearly flat, in nominal terms, to 2003, raises a new question: What was the value of the property new in 2003, expressed in today's dollars?

As you'll see in this chart (click to enlarge), if we update that 2003 acquisition to 2011, the price paid way-back-when was equivalent to $1.729m paid today.

That means the newest acquisition at $1.499m comes in $230k below the 2003 value in real terms.

(Nerdy note: We used the implicit price deflator figures published by the U.S. Dept. of Commerce, Bureau of Economic Analysis, specifically the figures for residential investment, to make these real-dollar calculations.)

It's worth noting that 800 19th, which fronts Pacific, generated no reluctance on the part of buyers, but that one's south of Valley, highly walkable to school, downtown and other attractions, and bigger and nicer than 2610 Pacific. A different deal in several ways.

The sale at 2610 may have ramifications for newly returned 3405 Pacific (4br/4ba, 3200 sq. ft.).

The home is somewhat newer and boasts a nicely executed Cape Cod style, but it's got the Pacific liability and is closer to the refinery (although its once-great views of the refinery are now, thankfully, blocked). 3405 Pacific is up at $1.639m as of this week, having tried $50k higher last year. It was acquired new in March 2007 for $1.775m.
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