A pair of investors is adding to its growing portfolio of San Francisco apartment buildings, as rents in the capital of the artificial intelligence boom continue to climb.
San Francisco multifamily operator Ballast Investments and the Carlyle Group, its Washington, D.C.-based capital partner, scooped up a 10-story building in the luxury neighborhood of Pacific Heights for $31.9 million. The apartment building, Grosvenor Court, went on the market this spring after decades of ownership by San Francisco’s Grosvenor Properties. The complex opened in 1975 at 2055 Sacramento St.
San Francisco’s rental market has exploded in recent months as the fast-growing AI industry has drawn a horde of young tech workers to the city, and as big tech companies have called workers back to the office. As a result, the city has registered the fastest-growing rents in the nation during the past year, according to CoStar, with average rents at more than $3,300 per month, the second highest in the nation behind New York City.
Ballast, one of the city's largest multifamily operators, said in a press release that the deal was in line with its "continued focus on high quality multifamily investments in tightly held, supply constrained submarkets."
“Grosvenor Court is the kind of asset we know well: classic San Francisco multifamily positioned for growth in a recovering market,” Ballast cofounder and CEO Greg MacDonald said in a statement.
The storied Pacific Heights neighborhood has been home to famous residents including romance writer Danielle Steele, who owns the historic Spreckels Mansion, built in 1912; and former Speaker of the House Nancy Pelosi. Grosvenor Court is across the street from Lafayette Park, known for its tennis courts and city views.
Demand now outpacing supply
The sale of the 86-unit property breaks down to around $371,000 per unit. It’s Ballast and Carlyle’s third multifamily acquisition in recent months. The duo bought a pair of 1920s apartment buildings in June, at 1425 Taylor St. in Nob Hill for $14.3 million and at 1900 Washington St. in Pacific Heights for $11.6 million. Both were more than 95% leased at the time.
San Francisco’s rent boom follows a slump in which the city emptied out during the COVID-19 pandemic and rents cratered. Now the pendulum has swung back, and finding an apartment in the city is once again competitive.
"Growth in the artificial intelligence industry is drawing a new cohort of young tech workers to the city," CoStar Senior Director for Market Analytics Nigel Hughes wrote in September. "High home prices and mortgage interest rates mean few can afford to enter the for-sale housing market, and this continues to underpin demand for apartments.”
The combination of increased demand and little new supply "shows no sign of changing in the short term,” Hughes added.
San Francisco has plenty of office space — with a vacancy rate that’s not dropped much below 23% — even as the city’s multifamily vacancy rate is just above 4%. But while the last tech boom in the Bay Area saw high volumes of office construction, that did not happen on the residential side.
Multifamily construction activity peaked in 2019, when 25,000 units were under construction across the three major Bay Area markets. Since then, the pipeline has shrunk as high construction costs, difficulty in obtaining financing packages and red tape have hindered housing construction, industry professionals tell CoStar News.
San Francisco permitted only 1,074 apartments last year, its lowest showing since the aftermath of the Great Recession and far short of the city’s state-mandated targets by 2031.
Ballast says it has more than 7,700 units nationwide.