111 Fourth Avenue combination loft closes after 19 months at 30% off original ask

can you see a premium for a combined space?
It should not be a surprise if the sellers of the Manhattan loft combination #2HIJ at 111 Fourth Avenue expected to be paid a premium for having put together 3 small lofts in a building full of small lofts. After all, as recounted by VToy in the New York Times last month, the Conventional Wisdom is that 1+1=2.5, meaning that larger combined units are thought to be more valuable than the same units as separate units. (Note to The Miller: remember, my beef with VToy’s point in my September 10, deconstructing NY Times article about combining apartments to increase value, was not that she was wrong about the conventional Wisdom, just about her participation in the Real Estate Industrial Complex in Manhattan by the examples she used to ‘prove’ the CW.)

While it is hard to see that the CW was right in this case, it is painfully clear that the sellers were very wrong about the market value of what they had created. To the tune of taking more than 15 months to find a contract, at a 30% discount from where they had started:

how big, more or less?
Loft dimensions in our data-base for this building are irritatingly variable, but it appears that the #2HIJ combination includes “2,225 sq ft”, with “1,000 sq ft from the “I” line (as with #3-I), “675 sq ft” from the “J” line (as with #6J), and “550 sq ft” from the “H: line (as with #7H). Unless the 3-unit-combo also acquired former hallway space, the recent sale at $1.85mm comes to $831/ft.

Comping this space is complicated by this sobering bit of broker babble:

in its Original old condition and need complete renovation

lots of small space sales
In the time between #2HIJ came to market in April 2010 and when it closed a few weeks ago, 10 lofts sold in the building, at prices per foot ranging from $814/ft to $1,398/ft.

(Notes: #6F sold to the neighbor in #6G in a private sale; #2N and #2G are other private sales; #6B has an extensive renovation including substantial lofted space; and where no size is given on StreetEasy I used the size of another from that line to calculate $/ft, from StreetEasy or for our data-base; the old #2G listing has a full description)

no science, a bit of art
It is not easy to extrapolate from these sales to assess whether there is an evident combination premium in the need-to-gut #2HIJ at $831/ft.

On the one hand, it is similar in value to #3B but lower than #3L, neither of which claimed a renovation or bragged about the finishes, but in neither case was there a warning of Gut Job Ahead. On the other hand, #2HIJ at $831/ft is well below the small lofts sold with some bragging about renovation, but those values are all over the map.

Assuming a ballpark of $200/ft for a gut renovation of #2HIJ, the adjusted market value of $1,031/ft is higher than #1A ($967/ft) and #3N ($937/ft) but still lower than #8G ($1,398/ft), #6B ($1,111/ft), and #2G ($1,191/ft). Increase that hypothetical renovation investment to $300/ft, and the #2HIJ adjusted market value is still less than #8G and #2G and just a tad higher than #6B, a loft that was sold without any bragging about its finishes.

1+1+1=???
Net-net: if there was any market premium paid for #2HIJ because it is a large combination, I can’t find it. The wide spread in values of the 10 smaller lofts sold suggests that there are things about this building that I don’t know (and have not taken the time to learn, including which measurements are right … if any), but that spread makes it very difficult to comp out #2HIJ.

Net-net-net: whether these sellers over-valued the loft combo because it is a combo, or whether they just over-valued it, they did over-value it: it took 19 months to close at a 30% discount to first ask. You do hate to see that happen.

© Sandy Mattingly 2011