the yield after renovating 71 Nassau Street loft? 5% over 2006 (ouch)

numbers collide, a little painfully, for FiDi loft on resale

It’s not bad enough that the folks who just unloaded the “1,376 sq ft” Manhattan loft #15A at 71 Nassau Street (the Croft Building) for $1.348mm paid $1,282,995 when they bought it from the developer in August 2006, “earning” a 5% gain; after all, over that time period the StreetEasy Manhattan Condo Index was up (only) 8%. Nope, the bad news is that these folks put some money into “many recent renovations” before getting that already-below-expectations return. It seems that The Market responded to the “many recent renovations” with a … meh.

Admittedly, it is hard to assess how much these folks may have spent on the many recent renovations, as it is hard to see them, even with the hints in the broker babble. (At least, it’s hard to see “many recent renovations”.) The babble points to only a few things, none terribly “renovation” compared to “upgrade”. This is not a very long list:

The apartment further showcases many recent renovations including custom designed closets throughout, a washer and dryer, custom shelving and built-ins as well as charming window treatments that adorn each of the residence’s ten magnificent windows.

This next sentence doesn’t imply that these other brag-worthy features are added since 2006:

The top-of-the-line designer chef’s kitchen showcases seamless wooden cabinetry with self-closing drawers, slate countertops, a stainless steel Sub Zero refrigerator as well as a 4 burner Bosch stove, and Bosch dishwasher. The two spa-like marble bathrooms features beautiful slate tile flooring with intricately detailed tile work that adorn the walls, in addition to Watermark bathroom fixtures as well as extra-large bathroom mirrors and separate sleek inset vanities; a Zuma soaking tub is located in one of the bathrooms while an over-sized luxurious tiled shower is located within the other.

Post-“renovation” loft #15A sounds a lot like no-renovation-but-2006-new-development-level loft #11A:

The unit offers high- end finishes with 5 [inch] oak plank floors. The large north-facing master has his and hers closets, 4 windows and a spa-style bathroom, and city views. The second bedroom is a very generous size. The second bathroom features a soaking tub. The Kitchen offers Subzero refrigerator, Bosch dishwasher and gas stove top vented to the outside. There is a Bosch washer and dryer in the unit.

I can’t tell from the #11A kitchen photo if there are self-closing drawers, but I’d bet a quarter that there are, along with slate countertops, Sub Zero frig, and Bosch stove, just like in #15A. Similarly, there are no bathroom photos in either listing, and no detail in the #11A babble to match that of #15A, but it sure seems as though the bathrooms in #15A were standard issue for the building in 2006, nice as they may be.

Custom closets, custom shelving, custom built-ins, and new window treatments neither sound like “many” nor like “renovations”, but I wasn’t on that committee. The only visible new stuff in the listing photos are the bookshelves, desk, and lower cabinets on two walls in the second bedroom (pic #4), less than 30 linear feet of millwork. Not likely they would have spent more than $35,000 for these “[not] many” “[not] renovations”, which is cold comfort in view of the market response.

No surprise that the loft claims “an impressive open bird’s eye view of NYC’s downtown financial district” at this height. With the listing photos showing the living room windows at such extreme angles, it is difficult to assess how impressive these views are, or whether they are materially more impressive than the views 4 floors below.

playing with the neighbor’s money, losing

Let’s assume that the light and views are substantially equivalent, despite the height difference of about 45 feet. What would you guess is the value of being on a higher floor? According to One Smart Guy I know, “a typical adjustment might be 1% per floor before considering view differences”. The Miller’s approach implies that the gap between #15A and #11A would be about $54,000 if measured from the #15A base-line. Another Smart Guy I know is in the same ballpark, with Urban Digs using a range of $10,000 to $15,000 per floor for two same-line units with a small gap between their floors and no (or little) difference in light or view. Of course, that implies a range of difference between #11A and #15A of $40,000 to $60,000.

If you already clicked on the #11A listing you know where this is going. Loft #11A sold for $1.3mm on August 28, off a May 22 contract. Loft #15A had some hiccup (needing two contracts to get one sale), but went head-to-head against #11A from its debut on February 7 until its first (failed) contract on April 28. The Market treated these two lofts as though those two Smart Guys are smart guys, and as if the lofts were otherwise identical in condition. In other words, by setting clearing prices for these two lofts $48,000 apart, The Market behaved pretty much exactly the way the simple Floor Height Differential implied and treated the “many reverent renovations” as adding no value.

Ouch.

It is fascinating that this analysis implies that the #15A sellers were poorly treated by The Market (at least, insofar as the “many reverent renovations” are concerned), yet they got exactly what they wanted. The sales price of $1.348mm exactly matches their single asking price, both before and after the April 28 failed contract.

These sellers are, then, the opposite of greedy. They believe they improved the loft through “many reverent renovations”, yet they set an asking price below what the StreetEasy Manhattan Condo Index would suggest for an unimproved loft. And they accepted a deal at a price that treated their higher-floor loft as perfectly equivalent to the lower floor neighbor who sold a little earlier, allowing only for differences in floor height and allowing no premium for improvement.

Fascinating.