playing with 475 Broadway loft comp that is up +58% over 2004

right facts and wrong facts; helpful facts and distractions
I’ve been having a running conversation with a very savvy client about values in Soho, including market trajectory currently and in recorded history. He is wondering about a classic Soho loft that was gut renovated 7 years ago that is now asking nearly 70% more than it sold for then (needing that gut). He is trying to suss out how much of the current market value is based on the renovation, and how much is simple market appreciation over 7 years. The most interesting comp in our discussion is a similarly-sized loft that sold recently at a 58% premium to when it last sold. The conversation is interesting because (like all good buyer conversations) it is fact-based, using actual Manhattan loft sales data; it is really interesting because I think having so much information in this instance confuses rather than reveals.

It is hardly controversial to say that the most recent highly relevant comp for any loft is a much more important data point than anything that happened 7 or 8 years ago. My guy knows this, but in a world in much there is more information than just current comps, it can be hard to stay focused. And harder still for a guy who prides himself on fact-based analysis (yours truly, that is) to argue, essentially, that it is wiser to ignore the past history of the very loft you are interested in because that history (in this particular case) is unhelpful, or even wrong. (Let’s put aside the metaphysics involved in calling a market fact such as a past open market sale wrong. Please.)

That relevant comp is the “2,500 sq ft” Manhattan loft #6E at 475 Broadway, which has sold in this sequence:

• May 7, 2012 $3.2mm
• December 13, 2004 $2.025mm
• September 9, 2002 $1,873,700

That’s up 58% in the 8 years since 2004 (as noted) and up 71% in 10 years.

The “2,500 sq ft” floor plan is on a Long-and-Narrow footprint with a stub in the back where the master suite sticks out. The place is done, with classic loft elements and improvements that include:

• huge windows
• 13’ ceilings
• a gas fireplace
• wooden inlays
• wainscoting
• crown moldings
• 300 bottle temperature controlled wine room
• Subzero and Viking appliances
• maple cabinets and granite countertops.
• marble bathrooms (with rain shower and Jacuzzi)
• dual zone AC

(Personally, I don’t view wainscotting and crown moldings as “improvements” in a classic Soho loft [it looks rather UES to me], but to each her own.)

Manhattan Loft Guy snobbery aside, The Market loved this loft, as it came out on January 10 at $3.25mm and found the contract by January 25 that closed on May 7 at $3.2mm. Can’t argue with that.

You would never know it from StreetEasy, but this was the exact same beautiful loft (with the same floor plan) then, as now, though the living room light fixtures have been changed and there is a different tall sculpture next to the fireplace. Per our listing system, this is the broker babble that lead to the sale at $2.025mm:

Dramatic 2500 sq ft high full-floor condo loft offering an expansive living and entertaining space with a wall of oversized windows and 13′ ceilings throughout. The loft includes a new top of the line kitchen, dining room, 3 full bedrooms, two of which have bathrooms en suite, and 3 full new marble bathrooms. There are beautiful details and crown moldings, a fireplace, central air-conditioning, and excellent light through oversized windows in all rooms.

Thus, the entire gain of $1.175mm from December 2004 to in May 2012 is market appreciation. (Similarly, the spare listing data in our system from the September 2002 sales suggests that loft #6E was even then a wainscotted wonder, which is consistent with an appreciation way back then of [only] 8% in the 27 months between those two long-ago sale; a big improvement in condition then would have been more rewarded.)

history is a distracting subject
In contrast, the subject loft I have been discussing with my client has a similar trajectory but different history. That loft is a good comp in location, size, light and (now) condition as #6E at the Hohner Building II (aka Soho Tower) and is offered at a similar price per foot as loft #6E. But that one last sold about a year later than the prior sale of #6E needing a gut renovation. Despite needing a gut renovation, it sold then at 93% of loft #6E on a $/ft basis. Some of that 2005 value was about a year’s worth of market appreciation, but 2005 was not nearly as frothy for the overall Manhattan residential real estate market as 2007.

My guy is worried about that loft, that (given the purchase price + renovation cost) it has not appreciated as much as it ‘should’, so he wonders about the values. It has not yet sold at under $1,300/ft, after having been bought in 2005 under $800/ft and built out for (let’s assume) at least $200/ft. That leaves barely another $300/ft as market appreciation from 2005 to 2012 (no more than 30%), which strikes my guy as paltry. And troublesome, because difficult to understand.

Respectfully, sir, you are being distracted by the details, uncomfortably anchored in that 2005 price as a total gut job. My working hypothesis, in considering the roughly parallel history of loft #6E with a different starting condition, is that the folks who bought the subject loft in 2005 and spent considerable money fixing it up overpaid for it in that market, and that the only thing that makes sense to look at now is how that loft compares to loft #6E and its other peer sales.

In this case, the subject loft hopes to achieve in the current market the value that loft #6E got, which seems reasonable based on comparing the two lofts. Forget the fact that going back 7 and 8 years, the two lofts sold in very different conditions at values that are uncomfortably similar, under any rational market analysis. Forget the fact that the current sellers — even if they get their asking price — will not reap the gains that the #6E sellers just did, because they had to invest in the renovation that #6E never needed.

As a buyer, focus on current comps. Don’t get distracted by the details of history when there is better hard data to consider. Leave that to bloggers.

And leave it to the 2005-buyers-who-renovated-then-sold-in-2012 (they hope) to rue the appreciation from then to now, however paltry. Bummer, for them. Irrelevant (when there is more relevant information), for you.

© Sandy Mattingly 2012