22 Mercer Street loft market is VERY efficient (for now)

well, it’s a theory
Generally speaking, the Manhattan real estate resale market is not terribly efficient, in the economic sense. First, because real time accurate information is not widely held (among other factors: in contract status, actual condition of units); second, because “The Market” does not value an apartment or a loft, the individual seller and buyer who (eventually) get together set the value, and The Market is the aggregate of all those individual bilateral decisions; third, because The Market is relatively thin (comparable apartments or lofts don’t trade every day, providing less frequent snapshots than in a deeper market); and fourth, because — especially with lofts — we are not dealing with commodities (essentially identical items), such that the clearing price for A is a valid proxy for the concurrent value of B.

if you were going to look for a specific loft building in Manhattan in which to hunt for efficiency, you’d start with a property that was pretty new, a recent development or conversion in which (a) the sponsor did such a good job that the first buyers largely lived in the lofts “as built”, and (b) owners have had less time to do much in the way of “improvement”. You’d still have to get lucky to find a pair or more of early buyers of essentially identical lofts who both decided to sell at the same time.

it is better to be lucky than good
Did that apple really fall on Newton’s head? I don’t know if that story is apocryphal but this one shows a high degree of Manhattan Loft Guy luck:

• #2B at 22 Mercer Street sold on September 22
• #3B sold on June 7

They have: (a) identical floor plans (although #2B has a Juliet balcony), and (b) identical kitchens and baths (and, probably, everything else) from sponsor sales in January 2007 (#2B) and January 2008 (#3B).

From the perspective of efficiency-testing, it is interesting that they did directly compete with each other. #3B came to market on April 1 and found its contract by May 11; #2B came out on May 14 and was spoken for by July 8. Note that they took only 6 and 7 weeks to contract; The Market was pretty receptive to them.

Coming out first, #3B tested at $3.095mm before dropping to $2.975mm; #2B seems to have paid attention, as it came out at $2.995mm.

paging Sgt Joe Friday
Given my thesis and big build-up, you won’t be surprised by the results. So … in a moment, the results of that trial ….

(a moment)

(passed)

 
That “difference” of $12,500 is but 0.044444% of the lower price, a rounding error. Given that there were two different sellers (with two different listing firms) and two different buyers, all operating in sequence roughly 6 weeks apart, it is fair to say that The Market valued these identical units exactly the same. (To fracture the language and push the formatting, exactly exactly the same if you think a Juliet balcony is worth $12,500.)

Careful Manhattan Loft Guy readers will recognize that we have played this game recently, in that case in a Manhattan loft building that was converted to coop nearly 20 years ago (i.e., in which there has been a lot of time for an “identical” elements to have been washed out).

f’in efficient, you might say
That was in my August 26, loft market at 476 Broadway is pretty F’in efficient, in which I noted the F’in efficiency in the micro-market for the “F” line at 476 Broadway:

The Manhattan loft #6E at 476 Broadway closed on August 12 at $2.5mm, fairly soon after the upstairs neighbors in #8E sold their "2,350 sq ft" loft with an identical footprint (but very different layout) for $2.65mm on June 24. The lofts came to market within two days of each other in January, and with contract dates of March 18 (#8E) and June 24 (#6E), the two lofts were simultaneously available to the market for nearly two months. The Market clearly preferred one to the other.

Really careful Manhattan Loft Guy readers will recognize that we have played this game even in the post-Lehman nuclear winter thin market of early 2009, in my May 6, 2009, pretty efficient (depressed) market at 505 Greenwich Street as both 6F and 7F sell, off 25%.

the other hand opens
But you know that The Market is not generally efficient, a point on which I have hammered time (August 15, tales of one loft building / the inefficient market at 718 Broadway, circa 2006, weaker market, 2010) and time again (September 20, same floor lofts sell at 46 Mercer Street, in same condition but at different prices).

And that’s how we roll at Manhattan Loft Guy … The Market is The Market, is The Market. Sometimes it’s efficient, and sometimes it … ain’t. Consider yourselves warned.

© Sandy Mattingly 2010