Menlo Park Downtown – the Hottest Neighborhood on the Peninsula?

A small downtown area of Menlo Park (referred to in MLS as the area #304) tucked between El Camino Real on the East, Valparaiso Ave on the North, Stanford Shopping Center on the South and Johnson St, Arbor Rd. and Fremont St on the West might be the hottest neighborhood not just in Menlo Park, but on the entire Peninsula. Prices keep moving up and following brisk sales in 2012, the inventory in 2013 dried out. 

There were signs of the Downtown area heating up already in 2012.  In the early part of that year before May 30, 2012 only 7 homes sold. Some sold prices exceeded the listed prices, but only by a few thousand dollars or a small fraction of a percent.  Then on May 30, 2012 two transactions closed, one for a small 750 sq. f. house on a 5800 sq. f. lot at 455 Yale Rd for $976k or $1,301 per sq. f. and another for a slightly larger 1260 sq.f.  house at 1330 Hoover for $1.261 M on a 900 sq. f. lot or $ 1001 per sq.f.  The latter sold $312k or 33%(!) over the asking price. This changed everything. The boom in the Menlo Park downtown had begun. Through the end of the year another thirty homes sold bringing the total for the year to thirty seven.  The number of days on the market (DOM) went down and sold prices started to significantly exceed the asking prices.

The trend continued in 2013, but inventory disappeared, which exacerbated the demand. 90% of the homes in this area sold above listed prices. Due to the lack of inventory only ten homes were sold in 2013 through June 21, five are pending and two are active. One of the active properties is a house with a roof partially missing described in MLS as a "townhouse in the making".  It is offered for $1.8 M and is supposed to be ready later this year. So, what happened to the inventory?

It is really real estate economics 101. The area 304 is shared by both, residences and businesses of the Menlo Park downtown. There are many modest residential homes in this area that were built 60 to 70 years ago. Many of them deteriorated due to lack of adequate maintenance, a process magnified by a recent real estate crisis, and the price of land kept growing due to successful neighbors. This area is surrounded by Stanford University from the South, Menlo College and Menlo Park from the North and Sand Hill Road, notable for its concentration of venture capital companies, from the West. And of course, there is the Facebook HQ.

Facebook moved to Menlo Park from Palo Alto in February 2011(to buildings previously occupied by Sun Microsystems). The Facebook HQ is 4 miles away in a straight line from the Menlo Park Downtown. It is difficult to overstate its impact on demand for condos, townhouses and homes in this area. If one would attempt to find a single event behind a local boom – the current boom started one year after Facebook moved its HQ to Menlo Park. Demand for real estate is so high that many owners who cannot afford the cost of improvements or remodeling have only one alternative to maximize the gain – wait for the price of the land to go even higher. So, the inventory dried out.

It is exciting development for developers in this area and future owners, but not always by those who either are displaced by the rapid change of fortunes of this small area.

This handsome 60 years old, 1200 sq.f. house is located on Hoover St (R 3 zone) on approx. 5700 sq. f. lot. The only way to bring this property to the going $2 M range is to either totally remodel it and add another floor or to tear it down to make room for an entirely new construction.

Menlo Park Downtown street scene. Owners waiting for an offer?

So, what will happen next? As new development will be replacing older properties, prices of land will continue moving up. More homes will be remodeled and sold or bought by investors to tear down and make room for development of new homes and condos. As land to redevelop becomes undeveloped, demand will be increasing in the adjacent areas of Menlo Park, Redwood City and East Palo Alto.