Vision Loft at 124 West 18 Street sells with huge premium for roof deck

“Art, meet Science”
I don’t know why I continue to be surprised when outdoor space drives value … errr … through the roof, but perhaps that capacity for surprise helps keep me young. Today’s Ponce de Leon moment is occasioned by the Manhattan loft on the 7th floor of 124 West 18 Street (Vision Lofts), which has “1,436 sq ft” of interior space and another “725 sq ft” of “roof top oasis”. It sold on October 5 at $2.63mm, which was a 5.4% premium to the asking price; more significantly (for present purposes), that sale reflects that The Market put a value on that oasis that was in the range of $700,000 and $900,000. Put another way, it is likely that the roof deck (if separately valued) was worth the same as the interior space on a price per foot basis.

Let’s do the (simple math), then look at what we’re looking at here.

hard numbers need interpretation (softening)
The Miller would tell you that to evaluate outdoor space you first determine a value for the interior space. (He did tell you [and me] that, and I riffed on his work in my May 6, 2010, riffing with The Miller on the value of Manhattan terraces, decks + balconies.) For the 6-unit Vision Lofts, we are lucky to have a relatively recent sale of the 3rd floor, on May 6 at $1.7mm. With the same “1,436 sq ft” footprint, that sale reflected a market value of $1,184/ft for interior space in the building earlier this year. The prior sale before that was the 6th floor, a near-Peak sale for $1.9mm on June 24, 2008, or $1,323/ft.

Straight math suggests that that spread of 11.7% between those two sales reflects only the difference in markets between June 2008 and May 2011. If you would figure a slight premium for the 6th floor as higher than the 3rd floor, we are still looking at roughly a 10% drop from Peak to 2011, which seems reasonable to me. With that assumption, we can ballpark the 7th floor interior space at roughly $1.75mm, with a $50,000 premium for being 4 floors higher than the May sale at $1.7mm. That is $1,219/ft for the interior, leaving the $880,000 balance of the $2.63mm 7th floor purchase price on October 5 to be allocated to the “725 sq ft” private roof terrace.

That is $1,214/ft for the roof deck … essentially identical in value to the interior at $1,219/ft.

(You could argue that the October 2011 market is better than the May 2011 market, so that the 3rd floor comp needs an adjustment for current conditions; you could also argue that my assumed high floor premium at this low level is overstated. The first would allocate more value to the interior, and less to the outdoor space; the second would do the reverse. We are dealing with small variations, however.)

one framework
If you are interested in how one very professional appraiser approaches he issue of valuing outdoor space, you should read the whole analysis by The Miller, which is linked to in that May 6, 2010 Manhattan Loft Guy post. His analysis is entirely forward-looking, presumably because that is his role as an appraiser: what is the market value of a loft (apartment) before it has sold? Since I mostly write about loft sales, I start with his analysis to second-guess how The Market has treated a particular Manhattan loft.

The short-form Miller approach is simple: (A) figure out what the interior space is worth on a $/ft basis (a standard comp analysis), then (B) apply some magic dust to see where in the normal range of 25% to 50% of value (exterior space as discounted interior space) this outdoor space falls (a highly impressionistic analysis driven by considerations of scale and utility, among other things). To his credit (per usual) The Miller acknowledges how contingent this is, with a disclaimer worth quoting again (his bold):

Disclaimer: No comments by an appraiser would be complete without a disclaimer. It is important to note that these are only rules of thumb to guide you – the value of a terrace is not formula driven – these relationships are developed from market data and can vary significantly depending on the combination of amenities and time. If you are unable to grasp this, close your eyes very tightly, think about a cool ocean breeze on a warm breeze sandy beach, while holding a large set of perfect comps, until memories of this post fade completely away.

hindsight is easier (if unfair)
If The Miler’s job is hard because it answers the question ‘how should The Market value outdoor space for a loft?’, my job is easier because it plays with the question ‘how did The Market value outdoor space for a loft?’. In the case of the 7th (top) floor at 124 West 18 Street, the general answer is very simple: there was a huge premium paid for the rooftop terrace, far beyond what The Miller’s analysis would have predicted. (Remember: I say this not to criticize The Miller’s approach, but to comment on how the real world is messier than any set of guidelines can easily deal with.)

Granted, one can argue with the details of adjustments to be made in applying the 3rd floor May 2011 sale to the 7th floor sale a month ago, but the starting point is that interior space was valued at $1,184/ft by The Market in May. Using that number for the sake of simplicity, the 7th floor buyer paid $1.7mm on October 5 for the “1,436 sq ft” interior space and $930,000 for that “725 sq ft” rooftop oasis … or $1,283/ft … or 8.4% more for the outside space than the inside space.

pluses and minuses
Funny thing is that I am not finding much about this rooftop deck that would justify an exceptional value, above and beyond The Miller’s typical spread of 25% to 50% of interior value. It is just above the ideal size (The Miller puts that limit at 50% of the size of the interior, after which “the ppsf contribution falls off considerably for the additional space over the 50% threshold”). It has a great shape (not a long, narrow balcony), though there is a skylight that interrupts the rectangle. In Miller terms, that’s about it for pluses.

It does not have premium access: the deck is accessed by walking up an interior stair rather than by merely stepping from the living area. The lone photo suggests that it is not the most private deck, as people living in the adjoining buildings look directly onto the deck. I don’t see any reason to think that the views are dramatically better on the roof than from the living space. While the photo shows that the “oasis” has greenery, there’s no bragging about landscaping, watering systems, or any special facilities (wireless sound, shower, built-ins).

Personally, I suspect that the major plus here is one that I mentioned in that May 6, 2010 post that The Miller did not mention (though I suspect he would agree): scarcity. I have not done an extensive search, but I suspect that private rooftop space is relatively rare in Chelsea … not so rare as to compel a 100% valuation parity with interior space, but rare enough to justify some beyond-typical premium.

how big is big?
I cannot off-hand think of another Manhattan loft in which the apparent market value of the outside space was equal to the inside on a $/ft basis. I have seen ‘million dollar’ terraces before (that May 6, 2010 post was about a terrace on top of the 12th floor at 110 West 25 Street that I valued at $1,152,000) but this one at ‘only’ $930,000 is noteworthy both because it grades out at roughly the same $/ft as the interior space, but because that value is more than half of the interior value: assuming parity with the 3rd floor interior, the interior of the 7th floor loft was worth $1,700,000 and the roofdeck $930,000.

Even in the case of the million dollar deck at 110 West 25 Street, that deck was still only 42% of the (implied) value of the interior of that loft.

I found a roof deck that was apparently worth about $800/ft (a total of $725,000) in my March 15, 542 LaGuardia Place loft zooms through market, with a very expensive roof deck, close in size and scale to the Vision Loft roof deck and top-floor loft, but still less expensive by any measure.

The loft building that I hit on my May 3, how much were those roof terraces worth when 211 East 2nd Street loft sold?, is similar in scale to 124 West 18 Street: the full-floor lofts were in that case “1,860 sq ft” and the building was only 6 stories, but those private roof terraces were much proportionatly larger pieces of that roof (“1,640 sq ft”, in total). In that case, the terraces carried implied values at around 25% of the interior on a $/ft basis.

bottom line for rooftop (and other) outdoor space
Leaving some room to argue about the adjustments to make to comp the 7th floor interior space (as above), the analysis is otherwise simple, and results in a huge relative value for the roof deck. You might not get to $930,000 or to $1,283/ft for the outdoor premium, but you will get to some numbers that are close to those, and those numbers will be extraordinarily large as a premium for outdoor space.

Indeed, at this point I cannot think of another Manhattan loft in which the implied value for the outdoor segment was as high.

I have said before that I believe that outdoor space (like a view) is something that some people will over-pay for, meaning that they will pay a higher premium than market data would support. In my March 20, a $2 million view on Madison Square? comping at 15 East 26 Street, I found a direct View vs. Not View same building comp:

Everyone will still have opinions about what a view may be worth, but in this instance this view over Madison Square Park was worth $2,014,000. Indeed, while I believe that few people would estimate a view premium on this scale, facts are facts.

Look at it another way: the #14A buyers paid a 75% premium over #14F for the view.

Whether they can get a bank to lend on that value is a different story. What is also interesting about the 7th floor sale at 124 West 18 Street is that there were at least two buyers willing to ‘over-pay’ (beyond hard market comps), as the clearing price exceeded the asking price by $135,000.

The Market is The Market, is The Market. That roof deck is worth something like $1,300/ft and something like seven figures. It does not matter that Manhattan Loft Guy would argue differently. (Sigh.)

© Sandy Mattingly 2011