what would have happened if they renovated the kitchen to sell 105 Fifth Avenue loft?

might have saved a year, or a few bucks

This kind of Manhattan loft broker babble intrigues me, not for the editorial choices but the ownership choices:

Having undergone an extensive renovation (with the exception of the kitchen), the loft offers all of the conveniences of modern living while retaining Old World charm.

The loft in question is the “1,522 sq ft” Flatiron loft #7E at 105 Fifth Avenue, which sold for $2.05mm last month after having been marketed nearly continuously since November 2013. I am intrigued about the decision not to renovate the kitchen when the “extensive renovation” was done because I think that decision demonstrably cost the owner some money (and time) and because I’m always interested in whether owners make renovation decision based on resale or their own enjoyment. In this case, it may well have been a decision made for her own enjoyment, which is usually a good thing. The fact that it may well have cost the owner time and money is unfortunate, perhaps, but so long as she made the decision with eyes fully open … that’s life in the big city.

adventures in Manhattan loft babbling, and the limitations of the form

Let’s start with the loft, then go to the dollars. First with a photo, then a thousand words (just kidding):

the main listing photo is (as per usual) the best: showing high ceilings, big windows, columns, and some woodwork

The broker babble is less than a thousands words, but recites a long litany of features and improvements:

• “Corinthian columns” (though I only see one)
• 11 foot ceilings
• “authentic weathered hardwood floors”
• 7 floor-to-ceiling mahogany-cased windows (Pella commercial double paned glass)
• Waterworks tiles and fixtures in both baths
• Master bath with in-wall speakers, and honed Carrera slab around the 7-foot long soaking tub and countertop
• guest bath walls with Venetian plaster
• Crown and baseboard moldings added throughout
• new radiators
• “Special customizations” include extensive, high quality millwork (new floor-to-ceiling bookcase in living room, a custom built home office, almost 15 linear feet of closets for extra storage space, built-in bookshelves in 2nd bedroom)

You’d say no detail was overlooked or no expense was spared in the renovation, except we know the kitchen was not renovated. Since we’re quibbling, notice the relative lack of closets in the master and the complete lack of closets in the second bedroom:

the “almost 15 linear feet of extra storage space” (on the East wall) is both needed and as far from the bedrooms as it can be

The loft has only that single south exposure, so there are very practical limitations on how to configure this as a real two-bedroom, despite the “1,522 sq ft”. And with the plumbing limited to the north wall, there aren’t even many option for a second interior ‘bedroom’.

The kitchen, of course, is not pictured. But it took me a lot of backing-and-forthing to realize it is behind the wall in the center of this photo:

From the litany above, the “extensive renovation” addressed some creature comforts (bathrooms and storage) but the bulk of whatever the budget was seems to have gone to quality. Venetian plaster, custom millwork, Pella, Waterworks, even the new radiators, all seem to be aesthetic improvements rather than functional improvements. Put in other terms, making life in the loft more beautiful.

While that seems inescapable, there are two elements not addressed, clearly on purpose. The kitchen, obviously, which presumably was ‘good enough’ for the seller, if not for marketing purposes. And those “authentic weathered hardwood floors”. I just don’t get this: note in the photo above the different color finishes, with the lighter wood running out from the kitchen door, and the perpendicular run of boards from the corner of the larger rug to the corner of the smaller. At some point in the past, all the floorboards went in the same direction; at some point in the past, a section of flooring was repaired, but repaired without regard to overall trend of the floor.

I simply don’t get why someone would spend money on Venetian plaster and custom millwork (to take just two examples) and not finish the floors in a uniform manner. Not very “authentic”, and not uniformly “weathered”!

I will come back to the finishes of the loft, but let’s get to dollars.

 a long road to a large discount

It’s all there in StreetEasy but you have to click on the past listings to get this full history (short breaks from marketing omitted):

That’s 15 months and five prices from first offer to contract. It’s a little distracting but fascinating that the owner started to sell on her own, before changing course and hiring a top firm in about two weeks. The sequence is consistent with a (very typical) conversation between owner and agent like this: “we’ll start at a price consistent with your idea of value (that also pays [part of] our sales fee), but if we don’t get an offer in two months we will suggest a price drop”. A cynic would say the sequence is also consistent with the agents ‘buying’ the formerly-FSBO listing by promising a price unavailable in the market, but that’s not me. (I swear.)

What is clear is that all five asking prices were wrong, but that the last asking price wasn’t so wrong as to prevent a deal at a reasonable discount. The seller got out 18% less than where she started (gross, before considering the sales fee), 21% off the highest ask, and (only!) 5% off the last asking price.

there is relevant local history

Before the #7E owner started down this road there wasn’t much useful closed sale data from within the building. The “1,400 sq ft” loft #5A was sold to the next door neighbor in July 2013 for $1.8mm, but that’s little use as a comp. Not only was it not exposed to the public market, but we have no public information about the condition of this loft, which had been owned by the 2013 seller since 1995.

But then loft #7B sold for $2.55mm in December 2013, having been offered by (this can’t be a coincidence) the agents just retained to sell #7E. Loft #7B was a little bigger than #7E (“1,750 sq ft”) but functionally similar (2-bedrooms, 2 baths) in a corner with two exposures. The condition of the two lofts were likely similar, with the critical difference that #7B bragged about its kitchen. As of October 2013 (when #7B went to contract), hard data from The Market offered little hope that the smaller #7E could attract a buyer near the $2.55mm that #7B got.

Hence, eventually, the February 2014 price drop to $2.395mm. And the June drop to $2.295mm. And, to get way ahead of ourselves, the January 2015 drop to $2.15mm.

The story got a reset between the last two #7E price drops. Those #7B buyers at $2.55mm in December 2013 put their unit back on the market in September 2014 and quickly found a buyer at full price (contract within a month, closed on November 26, 2014 at $2.695mm). Thankfully, the #7E owner did not take the wrong message about what a higher price for #7B said about her loft’s value, and she reacted to continued market indifference at $2.295mm by that last drop in price in January. As we know, that one did the trick, along with a 5% negotiated discount.

The spread between #7B at $2.695mm in November and #7B at $2.05mm in April is so large that we need revisit the comparison between the two. The $645,000 spread is smaller on a dollar-per-foot basis, with the larger #7B at $1,540/ft and #7E at $1,347/ft, but I am not convinced that dollar-per-foot is the better comparison.

the extra feet don’t add much, IMHO, but the 3 windows over Fifth Av are a big plus

The Market said that #7B is the more valuable of these two lofts, by 31% on an absolute dollar basis (that $645,000 spread) and by (only!) 14% on a dollar per foot basis. Some of that spread is from the corner exposures in #7B and the rest is the kitchen, apparently in need of renovation in #7E. You could spend $100,000 an a spanking new kitchen in #7E, as chef-ready as you like, and still bring the dollar-per-foot value (if every dollar of renovation added a dollar of value) only up to $1,413/ft, still leaving #7B at a 9% premium on a dollar per foot, or $545,000 on absolute dollars.

(We know from yesterday’s post that the overall Manhattan residential real estate market was essentially flat between the sale of #7E and that of #7B.)

I don’t think that even that hypothetical spread (with the hypothetically chef-y kitchen in #7E) can be accounted for by the three Fifth Avenue windows in loft #7B. Hence, my belief that the #7E seller did herself no favors in choosing to extensively renovate her loft without touching the kitchen. She ‘saved’ the out-of-pocket expense for the kitchen, but forfeited the opportunity to compete with #7B on more even terms. She’s free to use her dollars as she wants, but I wonder if she knew that that’s what she was doing ….

not to climb back on that dead horse, but …

Not to be critical of the #7E owner’s taste on a personal level, but I can’t be the only person who looked at the decor and finishes of loft #7E and thought “that doesn’t look very loft-y to me”. While decor and finishes are cosmetic and easily changed, such changes to high quality work is throwing that good money away that it took to create the ‘look’ in the first place.

Start with the crown and baseboard moldings, features not typical of ‘classic’ Manhattan lofts. The light fixtures (chandeliers?) in the living area and both bathrooms are whatever the opposite of ‘industrial’ is. Remember the invisible kitchen? Closed! In short, this Flatiron loft looks more like a Greenwich Village Gold Coast prewar apartment than it does a loft.

(The loft was babbled as “Located in the highly coveted Gold Coast off lower Fifth Avenue”, but I have never heard anyone [else] describe 18th Street as “lower Fifth Avenue” in loft terms, nor anyone claim that the Gold Coast extended beyond the Village. But I digress. Alas.)

I suspect that the overall visual impact of the space didn’t help market loft #7E to Manhattan loft buyers. If so, there’s a discount to be exploited by the new owners by doing simple things like replacing the chandlers (assuming the seller didn’t take them) and stripping away (some of) the molding. Extra points for taking down the “new floor-to-ceiling bookcase and a custom built home office” to open up the to-be-renovated kitchen.

Or not, as the new owners are as free to live without judgment from Manhattan Loft Guy as the former owner. But if they put it on the market, I have a license to consider how their choices impact market value.