over-optimistic loft seller at 124 West 24 Street still beats 2007 buy

if buy low, easier to sell high (d’oh!)
The 20-unit Manhattan 2007 loft condominium conversion at 124 West 24 Street is an interesting laboratory for observing the behavior of rats buyers over time.  The most recent data point is the October 19 sale of the “1,178 sq ft” loft #3C at $1.3mm. On the one hand, the seller succeeded by selling (d’oh!), though it took a 10% discount from the last ask and a 19% discount from the March 2011 starting point of $1.6mm. On the other hand, the seller got (slightly) more than the $1.266mm he paid the sponsor in November 2007.

From a market perspective, this 2011-over-2007 value is a win for the seller; from his accountant’s perspective, the sales commission and transfer taxes push the deal into the red [$1,300,000 – ($78,000) – ($23,725 = $1,198,275], but if we talk to his accountant too much we’d have to figure his monthly cost for living here (mortgage payment + $1,244/mo in taxes and common charges, less tax benefits for mortgage and taxes) compared to renting elsewhere, so let’s just stick with the market’s perspective.

The seller paid less in 2007 than he received from a buyer in 2011. Loft #3C shows up among the (now) 50 sets of paired loft resales on the positive side of the ledger in the (now) 76 sets of lofts that sold in 2007 and again in 2011. (See, again, my September 27, is the Manhattan loft market back to (up to) 2007? 61 repeat sales say “probably”, “a bit”.)

Getting back to the lab, the context for the successful sale of loft #3C includes that it was a more successful resale than that of loft #4C (identical except perhaps having better light, and for having a wall added to create a second bedroom) in March 2010 at $1.225mm. Not only did the #3C seller do better for having re-sold for $75,000 more than the #4C original owner did, the #3C seller paid substantially less than the original #4C owner: the sponsor sold #4C (with the light, without the second bedroom) for $1,464,651 in November 2007.

From a market perspective, that 2010-under-2007 value is a huge loss for the original #4C owner, $239,651 in cash, 16% as a fraction.

From a market perspective, the 4th floor version was deemed to be 16% more valuable in 2007, but the 2010 and 2011 markets reversed (and reduced) that spread.

was there a hyper-local trough in 2010?
In a rational and efficient market, loft #4C would be valued a bit more highly than #3C. (I am not convinced that the rational spread should be as high as it was in the sponsor sales, but I am trying to get past that.) That negative spread between #4C in March 2010 at $1.225mm and #3C in October 2011 at $1.3mm bothers me, as my belief is that those two market periods are more or less similar. (To use one stat, the StreetEasy same-sale-condo-index-(with-magic-dust) supports this view.) And one could argue that #4C and #3C should really be valued similarly (sponsor values be damned!), so that the last #3C sale was just a bit too high and the last #4C sale was just a bit too low, with both being within the range of data noise.

Or it may be that 2010 was notably unkind to this building. In addition to the resale of #4C at a loss, loft #PH-D resold in 2010. That loft was dealt a more difficult hand, with a later initial sale (a February 2008 closing is at The Peak), but the fall-off from sponsor sale to first resale was dramatic:

• Feb 21, 2008 $1,906,164
• April 30, 2010 $1,530,000

That 20% decline is even larger than the hit suffered by the original #4C owner.

With those two 2010 very red resales, I suspect that the other original owners were rooting for the #3C marketing campaign. They had to be relieved to see a positive resale in October. And they may be poised for even better news early next year.

a smiling sponsor
It has been a while since I did an overview of sponsor performance in a new development, so long that I a cannot remember the development that I last dubbed as highly successful in the sense that the developer squeezed about as much as the into-Peak market as possible with as little post-Peak inventory as possible. 124 West 24Street does awfully well on that score.

The StreetEasy building page shows that the first sale was October 26, 2007, a sale that our data-base shows went into contract on July 6, 2007 while StreetEasy has it at August 21. Either way, that is awfully close to a Peak sale. The second-to-last sponsor sale was even closer to Peak, on April 15, 2008 with a contract date of February 13. That #3B sale was the first with a sales price below the asking price on StreetEasy, though only 1.6% below ask (not all sales show asking prices). As of April 2008, the sponsor had sold 17 units, with one more to sell (it seems they kept 2 [for relatives?]), very nearly hitting the asking prices on all 17.

The laggard was #5B, which finally sold in January 2009, well into the nuclear winter. That buyer paid fully 25% less than #3B, the immediately prior sale. The 18th sale was not a winner, but by then the sponsor should have been playing with a lot of house money.

As you probably recall, 2007 was a very busy time for new developments. This sponsor must have had very good relationships with the unions needed to finish the job, because the original marketing in 2006 anticipated “occupancy in late Summer of 2007”. Instead, occupancy began in mid-Fall 2007.

I do not believe that sponsor were rushing in 2007 to complete projects out of fear that The Market would come to the halt that it later did, and it may largely have been a matter of luck as to whether a developer finished within 6 months before The Peak or only 6 months after The Peak. This sponsor did about as well as one could even have hoped, in retrospect. Projects that were not completed until Fall 2008 fell into completely different market conditions.

Sometimes it is better to be lucky than good. If this developer was not strategically brilliant (possible, just not likely), it enjoyed lucky timing. As did, very likely, the #5B buyer.

© Sandy Mattingly 2011