I've been through the offering memorandum from Commercial Asset Advisors, the rent roll and operating pro forma inside it, and every recorded sale of a 5 to 16 unit building in 92109 over the last 24 months. Emerald Street is a good building on a great block. It sits a block and a half from the sand, two of the units have ocean views, every unit is separately metered, and the owner has kept reinvesting. Buildings like this rarely come up, and I understand why the seller priced it where they did.
The price rests on rents the market hasn't shown me. The OM underwrites the two-bedrooms at $5,500 a month, $6.88 a square foot, which is more than any comparable beach-area two-bedroom has leased for in the last two years. The real market is strong, though: unfurnished, renovated two-bedrooms near the sand lease for $4,400 to $4,700 on 12-month leases, well above the $3,595 to $3,794 the tenants pay today. That gap is your upside, and California's rent cap sets how fast you can capture it. Once I use the rents actually being paid, a realistic expense load, and the property taxes you'll pay after the sale, the return at the asking price is , not the 4.18% on the cover.
The sales tell the same story. Over two years, 23 buildings traded at a median of $460,000 a unit, and the best-located ones topped out between $575,000 and $665,000. At $656,429 a unit, the asking price sits at the very top of that range for a 1978 walk-up.
The location is the reason to stretch for it. Sales within about three blocks of the sand traded at a median of $865 a square foot, 29% above buildings a few blocks farther back and 44% above the rest of Pacific Beach. Emerald sits a block and a half from the sand, and that premium carries through to every unit you renovate: at the rates these buildings trade, each $100 a month you add across the seven units adds roughly $187,000 of value.
The sellers are what make this one interesting. The building is owned by two sisters with different goals. One wants to sell and keep the cash. The other is exchanging her equity into a 1031 property she has already picked out, so her next purchase depends on this one closing on time. Individual owners weigh certainty and timing differently than a fund does, and that gives us room to win on terms as well as price.
The one thing we have to solve is the loan. The LOI doesn't set a price. It caps the loan at 60% of price and at whatever the in-place rents cover at 1.25×, and on this building the coverage test binds at about $1.8 million. As written, that plus your $2,350,000 covers a purchase up to about $4,105,000. This opinion assumes the bank will make the loan interest-only and size it at 1.20× coverage, which covers the full price range below. The bank has to approve that before we count on it. If it won't, we take the bank's own math to the sellers and use it as leverage to bring the price down to what the loan supports.
My recommendation is to open at $4,000,000, plan on landing between $4,150,000 and $4,250,000, inside the range the data supports, and stop at $4,295,000. We lead with what both sisters need: your U.S. Bank letter of interest in hand, more than half the price in cash, and a 45-day close before the end of the year. The price explorer below runs every number on the bank's terms and checks each price against your cash.
With Gratitude,
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