most patient sellers in the world sell 15 Broad Street loft after 3 years
one boat, in a rising tide…
The “1,420 sq ft” Manhattan loft #2904 at 15 Broad Street (Downtown by Starck) that sold for $1.51mm on September 18 had been first offered for sale in December 2011 at $1.5mm and was always available over the next 32 months that it took to get into contract, but for a hiatus of two months in 2012 and one month in 2013, employing only four asking prices over that entire time. I don’t think I have ever seen another loft that took so long to sell and that stayed with the same listing agent. You know what they say about a rising tide’s effect on all boats? The rising tide of the overall Manhattan residential real estate market took nearly four years to get this baby sold at $10,000 more than its first (long ago!) offering:
|Dec 14, 2011||new to market||$1.5mm|
|Aug 14, 2012||hiatus|
|Oct 11||back on market||$1.575mm|
|Sept 9, 2013||hiatus|
|Oct 5||back on market||$1.65mm|
|Feb 12, 2014||$1.6mm|
That’s two price increases, 10 and 22 months after coming to market, and a single price drop, four months after that second increase, yielding a sale within 6% of the last ask and just pennies (er … that 10 grand) over the first ask. (By way of context, the overall Manhattan presidential real estate market, as measured by the StreetEasy Manhattan Condo Index tracking sales of the same condo, was up 27% from the time loft #2904 came to market until it went into contract.) And, as noted, using a single agent through the entire 32 month period. I guess they were all on the same page throughout.
When you hear it said that “some sellers don’t have to sell”, these are the folks they are talking about. If they had to sell, they’d have dropped the price to meet the market in 2012. Or in 2013. Instead of raising the price each time after a hiatus.
let’s play … Guess The Math!
These recent sellers paid $1,308,895 when they bought the place from the sponsor in August 2006. They appear to have been investors, as the loft was rented in October 2006, in August 2007, and again in August 2012, per the Corcoran losing system. I suspect that last lease extended at least into 2013, if not 2014. We’ll play with the cash flow possibilities below, but the top line numbers are not inspiring:
($90,600) commission (if 6%)
($27,557) NYS and NYC transfer taxes on sale
($13,089) NYC ‘mansion tax’ on purchase
$78,859 before considering other expenses, cash flow
On the other hand, they had very little skin in the game. If you can see the detail on this Property Shark record, you will see that they took out a mortgage of … (wait for it) … $1,278,000 when they purchased. Backing out the NYS and NYC transfer fees that were part of the original deed recorded price, you will see that their original “purchase price” (before transfer fees) was $1,285,436, so their mortgage was for … (wait for it) … 99.4% of the “purchase price”. The lender was Allied Irish Bank, which was the preferred lender to the famous group of Irish carpenters (and their countrymen) who were buying up Manhattan new development condos in those heady days. Seeing a first mortgage at 99.4% is a harbinger of things to come, as Allied Irish Bank failed and was rescued by a receiver appointed by (and financed by, as I recall) the government of the Irish Republic. But I digress….
Having put down the princely sum of $30,895, these Irish-surnamed investors don’t look to have made any money on this operation. Their monthly nut got up to $1,402/mo for taxes and common charges, plus whatever they paid for that $1,278,000 mortgage. I can’t see the mortgage itself, but even at 4% that mortgage cost them $ $6,100/mo (if a 30 year mortgage); if at 3% (an amazing rate for an investor), they are still well below even on a cash flow basis, at $5,388/mo for the mortgage, then the $1,402/mo for taxes and common charges.
The rent they received bounced around, as I can see they got $5,000/mo starting in October 2006, $5,500/mo starting in August 2007, and (only!) $5,000/mo starting in August 2011. Let’s assume (like the Allied Irish Bank, perhaps) that the unit would never be empty, with an uninterrupted cash flow (humor me) and the ridiculous mortgage rate of 3%; the monthly math shows them writing checks for around $1,700/mo in the worst months (when the rent was $5,000/mo) and $1,200/mo when the rent was $5,500/mo.
If continuously rented (again: humor me), they wrote checks for the first two months (until it rented) of nearly $6,800/mo, then for eight months at about $1,700/mo, then for $1,200/mo for 48 months, and finally again for $1,700/mo for the last 37 months. That’s a lot of checks!
$13,600 = the first two months, vacant
$76,500 = 45 months at $1,700
$57,600 = 48 months at $1,200
Of course, we know that the unit was vacant for some period before the July 2014 contract, as the broker babble notes “now vacant and easy to view”, but I can’t tell in our system when that text was changed. And, of course, we don’t know whether the rent increased after August 2012. Nor have I seen the actual mortgage terms. But this is mere quibbling. It would take a mortgage at 1% to be close to a break-even month on a cash basis when the rent was $5,500/mo. And we know there were a lot of months when rent was only $5,000/mo, and an unknown number of months when the rent was $0.
No wonder Anglo Irish Bank went under. Though it is still a marvel that these sellers were as patient as they were.
The Market treated them fairly
At $1,063/ft for a 1-bedroom plus home office with north light but no view worth bragging about, the #2904 investors did not do materially worse than any of their neighbors. The other sales in the time they were on the market that were notably higher on a dollar-per-foot basis were the much larger #3120, with “breathtaking water and city views from every room” at $1,295/ft 10 days before #2904 finally sold; the “2,210 sq ft” #910 in July at $1,328/ft (apparently because if its corner layout and sunny views, including the NYSE); the “1,779” sq ft #3404 also in July at $1,268/ft; and a bare hand-full of others that you can find if you have the patience to scroll down the Past Activity tab of the StreetEasy building page. (Where you will also find a great many neighbors that sold for less than the $1,063/ft that #2904 eventually got, including many under $1,000/ft.)
Not a good building for investors, it seems. At least, not yet.
I had a seller client in another new development of this vintage who was not nearly as patient as these folks, in that he really did have to sell. As an investor who was writing checks every month to cover his nut (I wish I could remember his mortgage terms through … [wait for it] … Anglo Irish Bank, but he didn’t get a 1% loan) he got tired of check-writing and sold into a trough in his hyper-local market. He could have waited (and kept writing) and in two more years he’d have made some dough, but he got out when he could, and stopped bleeding.
These folks had a longer appetite (and greater resources?) for bleeding. But they didn’t do well. At all.