did Chelsea Mercantile loft sell at a record by accident at 252 Seventh Avenue?

Don Corleone, call your office
There are not many non-penthouse lofts in the iconic Chelsea Mercantile condo that have sold on a $/ft basis anywhere near the range of the “1,517 sq ft” Manhattan loft #17B at 252 Seventh Avenue, which cleared on December 1 at $2.625mm, or $1,730/ft. In fact, I can’t find any loft sales in the building that are not penthouses that closed above this value. Yet this record-setting sale was accomplished without this loft having been publicly offered for sale. That’s weird.

Loft #17B had been offered for rent — not sale — this Fall. That listing on StreetEasy claims Statue of Liberty views, which is pretty unusual from only 17 flights up as far north as 24th Street. That listing was active from September 2 to November 18, when it appears that the owner received an offer to purchase that she could not refuse. Instead of renting through a brokerage firm at $10,000/mo (an increase over the $8,900/mo that our data-base shows that she got since September 2007), she sold at $2.625mm.

What’s not to like about that price, if you are the owner?  Unless I have overlooked a super sale, the top price paid for a non-penthouse loft at the Chelsea Mercantile since The Peak is #17-I, for which a political celebrity paid an above-ask $1,715/ft on May 21, 2010. I touched on the prior post-Peak record-setting price (for #15-I at $1,658/ft) that I termed ‘Field of Dreams pricing’ in my July 7, why did Chelsea Mercantile loft sell within 3% of The Peak?. That loft resold at only a tiny discount from Peak (loft #15-I sold at The Peak, January 7, 2008, for only $1,703/ft) but even that sale was below the recent #17B sale on a $/ft basis.

Did I mention that #17B apparently sold without paying a sales fee? That saved the owner $157,000 (assuming a 6% fee), or just over $100/ft. She had been willing to pay 15% of the annual rent to procure a tenant, so her Rent v. Buy math is pretty one-sided; neither is ugly, but one is prettier.

positive cash is a wonderful thing
Had she rented at $10,000/mo, she’d have netted $8,500/mo in income after paying the 15% fee. Out of that, she’d have paid about $2,000/m in common charges and real estate taxes, dropping her net to about $6,500/mo. At 5%, that amount would finance something less than $800,000 in mortgage principal. She borrowed a lesser amount in 2004, but must have been paying a higher rate since then.

Property Shark shows that she put a mortgage of $550,000 on #17B when she bought it for $1.75mm in September 2004, but I must be missing the interest rate clause of the mortgage. At 6%, her monthly mortgage payment on $550,000 would have been around $4,600/mo, so there was positive cash flow of almost $2,000/mo if she had rented #17B at $10,000/mo instead of selling it. The Merc is unusual, I think; it has monthly charges sufficiently low that an owner who bought well before The Peak can rent at a positive cash flow, as with this example. (Compare the uglier numbers discussed in my October 13, rent v. buy, or buy then rent in the loft laboratory of 448 Greenwich Street, about lofts offered for rent at $7,300/mo with very different purchase price opportunities.)

even Fredo makes this deal
But an owner who bought well before The Peak who can sell at a record price will probably do that, so long as they don’t need to retain ownership to secure a place to live at some point in the future.

The #17B owner put down $1.2mm in cash when she bought in 2004. After paying off her $550,000 mortgage and city and state transfer fees (but no sales fee!), she netted something more than $2mm on the recent sale. That’s about a simple 67% return on her 7-year old down payment, available to her because someone to whom she was not trying to sell #17B made her an offer to buy.

It is nice to have the choice between positive cash flow of $2,000/mo to hold the loft and gaining $800,000, after paying a mortgage and transfer fees. Like many people, I suspect, she took the $800,000 instead of the opportunity to earn 3% a year on her ownership, with that ownership value going forward subject to market uncertainty and additional expenses.

© Sandy Mattingly 2011