loft at 4 West 21 Street an outlier, closes 9% off 2006

can we just put them in red?
One of the major challenges with considering market values of Manhattan loft (whether you are an agent representing a seller, a buyer, or one of the many interested bystanders), is figuring out which sale prices are outliers, and in what ways. In the case of the “1,658 sq ft” Manhattan loft #10B at 4 West 21 Street, I believe that the recent sale at $1.88mm is an outlier in the sense that it closed lower than the sponsor sale in 2006 (most of the market should be trading higher than in 2006), but not an outlier for the building (it still did better on resale than neighboring lofts). I would hazard that the recent sale is a fair value under current market conditions, but that the sponsor prices were higher than fair value under then-current market conditions.

It has got to be one sale or another that is ‘off’, and I am going with the sponsor sale in this case. Let’s look at the loft and the history, then I will explain why I think the 2006 clearing price is more suspect than the 2006 2012 [oops] clearing price.

very efficient, for those who like that sort of thing
This northwest Flatiron loft squeezes 3 bedrooms and 3 baths into a Long-and-Narrow footprint that, at the quoted “1,658 sq ft” is not all that long. Of course there are lofts much bigger than this that don’t have 3 bedrooms. This seller undid that 3rd bedroom for a den that opens up the living space dramatically, making the space much more loft-like. The sponsor was clearly going for the ‘affordable’ 3-bedroom market with the original configuration, but I wonder why they did an en suite 2nd bath and a full public bath, instead of using some of that space for more closets. (But I quibble.)

The building (dubbed 4W21, helpfully) was built new, and pushes the envelope as to whether or not it is a “loft” building. (See my evident angst in my April 7, NY Times on Chelsea penthouse leads me to wonder “what is a loft”?.) In this case, the architect thought he was re-interpreting the loft form (“reinterprets and updates the traditional stone and cast industrial lofts of the neighborhood”; successfully, per the photo on The Shark), the sponsor billed them as lofts, and the resale marketing continues to market them as lofts. I am not going to swim against that tide.

nice try, soon abandoned
The recent sellers paid the sponsor $2,067,047 on December 15, 2006. Our data-base reflects that a contract was signed in April 2006 and later failed, with the successful contract being signed on September 12, 2006. The asking price jumped quickly from $1,965,000 to $1,995,000 to $2,030,000 in the first few weeks it was marketed in the Fall of 2005. (Those were the days.) As was customary then, the sponsor “negotiated” that the buyers pay the NYS and NYC transfer taxes that would otherwise be paid by the seller, adding $37,047 to the asking price for the deed record price.

Those buyers asked The Market to pay them a slight premium on resale. The Market refused, but those buyers reacted instead of moping:

Sellers are out their expenses, of course, so in addition to the 9% hit on the sales price, the sellers paid a 6% sales fee and those pesky 1.825% transfer taxes. Whatever they paid their movers would have seemed cheap in comparison, by the time they got up from the closing table. I can’t see how much they put down in 2006, though they did put on some kind of mortgage (again, The Shark). If they only put down 10% originally, they would have been writing a lot of checks at closing (10% minus 9% hit minus 6% sales fee minus 1.825% transfer taxes = ouch).

none of the neighbors getting out alive can’t help much
The loft right upstairs had a worse experience, on both ends.  Loft #11B has the identical finishes and floor plan to #10B, including the den. It sold on July 28, 2011 at $1.815mm, or $65,000 less than #10B 8 months later. Worse (for that seller), the sponsor price in September 2006 was $2,102,686, or $35,639 more than #10B. As badly as the #10B sellers felt when they left the closing table last month, they were $100,000 better off than their former neighbors above them.

There was one loft sale in the building (4W21!)  between these two “B” neighbors. The “1,518 sq ft” loft #6D was bought from the sponsor later than the others, on January 22, 2007 at $1,781,937. It resold on December 27, 2011 at $1.695mm, (only) a 5% hit. Not as much red ink, but still….

which market price is out of whack? a theory about new development froth
Efficient market fans hold that the market price is the market price (is the market price, etc). Even the sales price of a Manhattan loft can’t be ‘wrong’ if it was exposed to the market and no guns were involved.

For having closed in 2012 9% lower than the sales price in 2006, loft #10B deviates at least once from the overall Manhattan residential real estate market. Either 2006 was ‘too high’, or 2012 ‘too low’, or some combination of both. I believe that in cases like this, the sponsor got the benefit of an over-optimistic market, which is a theory that can only be validated after the fact, if at all.

If you have looked at my September 27, 2011, is the Manhattan loft market back to (up to) 2007? 61 repeat sales say “probably”, “a bit”, and especially at the associated spreadsheet, you know that new developments are over-represented in the loser category of 2007-2011 paired resales (12 of the 27 lofts that closed lower in 2011 than in 2007 were new developments; 13 of 52 lofts that closed higher in 2011 than in 2007 were new developments).

Two things might explain this, at least as tendencies: in the froth leading up to The Peak, there was more buyer excitement about the (seemingly) scarce and oh-so-new new developments than they were about resales of ‘old’ lofts; and the sponsor sold into a buyer world that assumed that everything the sponsor promised would come true, including about the quality of workmanship, the financial ability of the sponsor to stand behind the work, and the prediction that the projected operating budget would suffice without immediate or significant increases in common charges or maintenance. The current market is more cynical jaded realistic, with the benefit of hindsight, among other reality-based aids.

I don’t know of any particular building problems with 4W21 (and don’t mean to suggest that there were any) but it was certainly not an uncommon thing for new developments in this era to have had post-closing problems with sponsors.

But look at monthly maintenance at 4W21: when loft #10B was marketed in 2005, the maintenance was said to be $2,270/mo, per our data-base, but when it just sold the maintenance had increased to $3,646/mo. That’s a 61% increase. 4W21 is a condop, so that includes the allocable share of real estate taxes for the coop plus the operating expenses; I know of new development condos in which common charges have essentially doubled in 4+ years. Perhaps the market is reflecting those higher monthly carrying costs into the purchase valuation calculation. If so, the market is smarter than I generally give it credit for.

Note to Self … check this theory against other new developments.

© Sandy Mattingly 2012