sometimes the bear gets you: 245 Seventh Avenue mini-loft sells 22% off from peak sale

Froth + Peak + Trough + Thaw need a 5th step
Knowing that the last time the “981 sq ft” Manhattan loft #4C at 245 Seventh Avenue was almost exactly at The Peak of the overall Manhattan residential real estate market, you might expect that it would have met with some resistance if offered in late 2011 at only a 4% discount to that Peak-y sale. And you would not be surprised that the 2011 asking price had to be dropped to an 8% discount from Peak in order to get a contract. But you might be surprised to see how big a negotiated discount it took to strike that deal.

I was surprised by the spread between the last two dollar numbers in this sequence:

That prior sale at $1.275mm is about as Peak as a closing price can be, sitting 11 days before the end of the first quarter of 2008. The 2011 marketing campaign began well after the 4-step sequence I described in my July 17, bromancing The Miller: squiggly chart explains (not quite) everything about Manhattan real estate trends, which reminds me that I should have added a fifth step to that sequence, Rebound, to describe the more or less flat 2010-2011-2012 market period.

The #4C seller knew that The Market had peaked, then dropped, and then rebounded; it took a difficult negotiation for him to realize that the rebound was not as large as he thought, at least not at the northeast corner of Seventh Avenue and 25th Street. Or, at least not for him.

why does the sale look more like Trough than Rebound?
You might be of the view that the trough in the overall Manhattan market was in the range of a 20% to 30% decline from Peak values. In which case you’d be perfectly happy with a spread of $1.275mm at the Peak and a resale at $995,000, but only if that resale was in the Trough period in 2009. A June 2012 sale should be well into Rebound territory.

If you were the #4C seller, you would have expected your loft to place no worse in 2011 than in the range of the upstairs and downstairs neighbors who sold essentially the same lofts 3 months before #4C came to market.

Upstairs, loft #5C came out in March 2011 with a brag-worthy kitchen and master bath, but needed two price drops (from the original $1.275mm, another over-reach) to sell on June 29, 2011 at $1.13mm. Downstairs, loft #3C seems to have taken advantage of the #5C over-reach by coming out in April at (only) $1.1mm then finding a quick contract and closing on June 6, 2011 at $1.06mm. Doesn’t that look like an efficient market that prices these small lofts on a small premium for each higher floor? Shouldn’t #4C with its “beautifully designed kitchen [and] giant master bathroom with Jacuzzi tub and shower stall” slot rationally somewhere near the middle of those two other sales, ending more or less at $1.095mm?

Of course the market can’t be expected to perform quite that precisely. But it looks as though the market punished #4C by $100,000 or so.

The best guess for a rational explanation for something like this (which does not always have a rational explanation, of course) is that the buyer pool was relatively thin, so hitting the comps was more a hit-or-miss affair. That is still my best guess, as #5C and #3C in June 2011 might have exhausted the small loft buyer pool in the micro-nabe if you define the Chelsea Mercantile as outside the micro-nabe. The photos provide a further hint, and the deed record yet another. There is no sign of habitation in the listing photos, which means the loft may not have shown as well as the (dressed) competition upstairs and down and that buyers may have felt the seller should be more negotiable because he had already moved out. And the deed record has a notice address in London, implying that the seller had moved rather far out.

So, a rational explanation is that the unique buyer interested in #4C felt that the unique seller of #4C was under a little more pressure than the sellers of #3C and #5C, and tested that feeling by low-balling to start a negotiation after the listing had matured a bit. This works, if it works at all, so long as the unique buyer interested in #4C is the only buyer interested enough in #4C to bid.

My guess is that is what happened. Costing the #4C seller (in London) about $100,000. Ouch.

By the way, if you’d like to see what Trough really looked like for small lofts in this building, note the prior sale of #3C: February 23, 2009 at $800,000, by a seller who so needed to sell that the loft came to market 10 weeks after Lehman filed for bankruptcy, in the teeth of the nuclear winter. (That seller had an excuse, and a reason to sell quickly: that deed record identifies the seller as a decedent’s estate.) You can measure the Trough to Rebound in this little corner of the Manhattan loft world by that stubborn sale of #3C in February 2009 at $800,00 and the next sale of #3C in June 2011 at $1.06mm. Let’s commit a rounding error and call that a 25% rebound up from Trough.

despite the west and north windows
The #4C floor plan is odd, in a way that is mentioned in the broker babble, and in a way that is not repeated in the same lofts directly above and below: that “giant master bathroom [has a] Jacuzzi tub and shower stall [and] west and north windows”. That lone north window cannot be proven to have impacted value, of course, as lofts #3C and #5C sold for more than #4C. But it is an odd thing to see, and an odd thing to babble about.

And, as it happens, an odd thing to end my blogging-while-on-West-Coast-vacation series on. Such is life.

© Sandy Mattingly 2012