Millennium Tower Settlement Reached, What About Property Value?

Firstly, all future property valuations are speculative, and this article is no different. However, with the recent news of the lawsuit settlement for Millennium Tower, San Francisco, we can’t help but ponder the impact on property valuation.

A Brief History:

The Millenium Tower was constructed in 2009, and at the time, the only true 5-star luxury condominium building on the market. The heightened amenity package, the concierge staff, the in-residence finishes; all were designed with excellence in mind. The original sell-out of the Millennium Tower in 2009-10 set new records for property value in the Yerba Buena (technically now the East-Cut) District. 

  • The tower sold over 100 condominiums in 5 weeks, totaling over $100M in sales (a record at the time)

  • Grand Penthouse sells for $9,400,000 (record at the time)

millennium tower | condo weekly

Millennium Grand Penthouse

The early success of the tower was a home-run for the high rise market in San Francisco. The first true ultra-lux, independent building in a city that was craving new development. To hit those milestones as quickly as they did shows the beautiful combination of product and demand.

The timeline of events post-construction is loosely as follows:

2014: The first reported sinking or movement of the tower when Transbay Joint Powers Authority hired a consultant to assess the excavation of their adjacent site, noted 10 inches of sinking (4 inches more than the proposed limit)

2015:  homeowners were told the building had sank 16 inches and tilted 2 inches Northwest

August 2016: Homeowners file a lawsuit against Millennium Partners. TJPA & city also involved.

April 10th, 2019; Settlement Reached

**Peak sinking was recorded at 18 inches, with a 14-inch tilt northwest. Proposed fix to begin Feb. 2020, and take roughly 18 months to complete - 52 additional pilings around the perimeter of the tower drilled to bedrock. The value of the proposed fix is approximately $100M.

In 7 years post-construction, this building sank a total of 18 inches and tilted 14 inches from center. 10 years later, a settlement has finally been reached to comp early homeowners for the value lost.

Millennium Tower | Condo Weekly

An undisclosed portion of the settlement will supplement the values lost by homeowners, with homes in Millennium Tower have depreciated an average of $320,000. It begs the question; When will values bounce back?

From a real estate perspective, a few things need to happen in order for the tower to regain it’s status amongst the most expensive buildings in San Francisco.

  1. Banks re-approve the Building 

The biggest reason (arguably more significant than public perception) the tower has had little no sales for the past 4 years is largely due to banks ceasing lending for purchases in the building, shrinking the buyer pool. The only way to buy one of these condos, for all intents and purposes, was in cash. Typically, cash buyers want a discount on the purchase price for the convenience of the transactional process, as well as the shorter timeline.

It’s hard to imagine banks will re-approve the building before the fix has been completed (~August 2021) and numerous independent tests confirm the building is settled and sturdy. Project in early 2022.

      2.   Early Internal Market Activity

Markets are highly psychological, so early activity will confirm that early adopters are looking for a value purchase. These early adopters will spark the market, and no doubt get themselves a decent deal on purchase price. Project late 2022, early 2023.

     3.   Established Internal Marketplace

An established marketplace will exist when sales have ramped back up to a standard turnover rate (~ 5% per year). It is hard to see this existing anytime before late 2023, roughly a decade after the resale of homes began to stagnate. In theory, condo values should be back to their original values by this point.

     4.   Traditional Market Values

For the Millennium Tower to regain its status as a premier building in San Francisco it will have to match or exceed surrounding buildings price per square foot. With Yerba Buena averaging $2,000 a foot this summer, Millennium Tower will have to basically double its sold price per foot value from 2018/2019; $943 per square foot. Factoring in the resale of new developments around that time in 181 Fremont, The Avery and The Four Seasons Private Residences, Millennium Tower has a tall mountain to climb back to its pre-sunk status. However, with limited space for a condominium development in the local neighborhood and a steadily increasing desire for homeowners to live in condo buildings around the city, the Millennium is the building to do it. The location alone will always be as desirable as any in San Francisco, as will the amenities.

Even with the foundational issues, Millennium Tower continued to break records. Grand Penthouse A recently sold for a San Francisco condo high of $13,000,000 at the end of 2016 during the initial phases of the legal battle.

This sale alone lends itself to believe the Millennium Tower will regain its prominence in the skyline of the city after banks resume lending and public perception is corrected in an Established Internal Marketplace.

For expert analysis and in-depth understanding of all San Francisco high rise condominium buildings, utilize Condo Weekly’s building specialists on each Building Page. The reason they were chosen; they know their stuff..

Tim McMullen