155 Franklin Street loft sells in a reverse flip (viewer discretion is advised)

sometimes real estate doesn’t work out (or was it Life that didn’t work out?) [major updates at bottom]

No matter what your interest is in the Manhattan residential real estate market, what happened to the recent sellers of the “3,532 sq ft” prime Tribeca loft #3N at 155 Franklin Street (the Sugar Loaf Condominium) has to pull at your heartstrings. At first blush, selling an “authentic raw space” for $1,562/ft seems like not such a bad deal for the sellers, who invited the world, and their architects (“bring your own architect and turn this character-rich blank slate into Tribeca’s most prized home”). But on further review (use your NFL referee voice for that), these recent sellers at $5.52mm could not have been happy, having been somewhat-recent buyers in June 2013 at $5.865mm.

That’s an obvious hit of $345,000 before considering other expenses, in a local geographic market that has gotten stronger, rather than weaker in the 12 months between purchase and marketing, and 19 months to sale. Approximately 17.415% stronger, if we can use the StreetEasy Manhattan Condo Index as a single-number proxy for change in the overall Manhattan residential real estate market from purchase in June 2013 to sale last month (even though the Index hasn’t been updated since November).

(If you have a Late Nite TV or infomercial voice, use it now, because ….) But wait, there’s more!!

The “other expenses” category for these June-2013-buyers-turned-January-2015-sellers includes a major demolition. When they bought the space in June 2013 it looked like a finished loft. (That listing is here.) Granted, those 2013 sellers weren’t bragging about the finishes, but still: the place was in move-in condition, and in good enough condition that willing buyers (ahem) paid $5.865mm for it.

(edit 2/27 ‘cuz all posts look better with pictures) this is “raw”

(more 2/27) and this is what it could look like, $750,000 or more later…

Evidently, they bought it to transform it. Hence the demo; hence the “plans by architect Elizabeth Roberts [that] create a grand Master loft with study, TV room and open living/dining space allowing for endless versatility”. These unfortunate folks are (not very well) hidden behind a restaurant-ish LLC (more on that, below), but I can’t help but wonder if this was a group of investors that got cold feet or if this was a family (or some other configuration of regular humans) that suffered some calamitous change in circumstances. Having paid $5.865mm in June 2013, and then having taken the place apart (“3,532 sq ft” worth of gut renovation ain’t cheap), the LLC wasn’t planning on making any money by coming to market at $6mm, as the apparent $135,000 “profit” on a full price deal would disappear just in transaction costs, and then some. But they didn’t sell at $6mm….

Of course there’s more: just in big numbers, they paid a mansion tax in June 2013 ($81,900), they paid transfer taxes to the State and City on the sale ($100,740), and they paid the president’s team at that hot new brokerage with the newly-one-word-name $331,200 to share with any co-brokerage that brought the (happy!) buyers. That’s more than a half million bucks in round trip transaction costs.

Of course there’s more. Add another $70,000 in common charges and taxes for the privilege of owning-but-not-living-in the loft. Then we get to some really big numbers incurred between buying and selling ….

Property Shark shows that the LLC took a mortgage for $3,812,250. Because rich people who don’t need to borrow money are not like you and me, the LLC was given this rather jumbo loan at 2.875% for the first ten years (see page 19 of the mortgage), for monthly payments of just over $22,000. Let’s add $400,000 for the mortgage payments made over 19 months.

That’s $983,000 worth of pain on top of the $345,000 hit on the purchase-then-sale; with the demolition, the architect, and any other miscellaneous expenses, the LLC members are probably looking at close to a $1.5mm hit. They put down $2,052,750 on June 14, 2013. They didn’t walk away with much of that on January 30, 2015.

As I said, that’s either “cold feet” or “some calamitous change in circumstances”.

let’s view this sequence through the metaphysics of The Market

These folks got creamed, no doubt. One question is whether they got punished more on the front end (by over-paying at $5.865mm in June 2013) or at the back end (by getting squeezed at $5.52mm in January 2015). Selling a loft at a loss in prime Tribeca while the overall market is up about 17% is a Man Bites Dog story, even without the luxury Five Million Dollar Condo context. Regular readers of Manhattan Loft Guy know that I am always intrigued by paired buy-then-sell transactions that are market outliers, and this pair is a huge outlier.

They bought at $1,660/ft in June 2013, then sold at $1,562/ft in January this year. That first transaction looks like it fits the overall market more than the second transaction fits. The last sale in this 10-unit Tribeca condo was the smaller #4S (“2,452 sq ft”) in September 2014 at $1,937/ft. A simple timing adjustment based on the StreetEasy Index suggests loft #3N would have been worth about $1,925/ft at the time #4S sold at $1,937/ft, a remarkably felicitous projection. I’ve not seen either of these lofts, and it is difficult to comp for condition from broker babble and photos, but neither sets of babble is especially enthusiastic or specific about finishes. Maybe the #4S plumbing rooms are more highly polished than those of #3N. And maybe there is a difference in value for facing mid-block (south) than onto Franklin Street, but if there is I can’t see it easily.

Not to complicate the same-building comp process, but loft #3S sold at a significant premium to #4S, just three months earlier, at $2,121/ft in June 2014. That one went a half million over ask, which I’ve always felt makes for a difficult comp. The Market clearly considered #3S a much superior loft than #4S, and there are hints of that in the broker babble (“clean, contemporary elegance …. [s]leek, modern finishes”).

Finally, there’s the conveniently-timed fact that loft #2N sold for $5.87mm not four months after The Unfortunate LLC paid $5.85mm for loft #3N. I did see that one while it was on offer, with buyers who would have had to renovate to make the footprint work for them. As I recall, the loft in real life lived up to its babbling, and would not have needed a renovation if the buyers didn’t mind the bedroom array (that “bedroom” just off the kitchen works better as a library).

Based on all of the above, I am quite comfortable that The Unfortunate LLC did not overpay on the way in to this mess. The outlier part of the pair is, then, almost certainly the January 2015 sale at $5.52mm, $1,562/ft. (These folks agree, at least by implication, by asking $2,241/ft for a smaller loft in the building.) What changed?

You wouldn’t know it by the extended #3N history, but The Market is up. (Again, those folks at $2,241/ft certainly and enthusiastically agree.) Two things about selling a loft post-demolition pre-renovation: (a) there’s hardly a better signal to potential buyers that sellers are (ahem) “highly motivated” than to start a renovation project, and then stop before, you know, renovating; and (b) you reduce the buyer pool to only cash buyers when you demolish it to this extent, as no bank will offer a standard mortgage on a loft that is uninhabitable. Each of these elements swings leverage to buyers instead of to this seller, but the degree of the swing is (in retrospect) rather breathtaking.

Indeed, there’s hardly a better signal to The Market that The Unfortunate LLC had to sell than the fact they did sell for $5.52mm what cost them $5.865mm to buy, and all that additional and ensuing money in fees, to carry, to plan to renovate, and to demolish. (Did I mention, to carry??) No one not intending to burn cash does this unless they have to.

 why do celebrities who use LLCs sign documents themselves?

There are a great many things I don’t understand about celebrities, and about other folks with too much money. When they go to the trouble to buy real estate behind a LLC, you’d think they’d have other folks (lawyers, staff … flunkies) sign things, so that they remain safely and quietly behind the wall of the LLC. (Remember that New York Times series about oligarchs and other shady Russians, Malaysians, Indians, Mexicans, and other miscellaneous non-US folks buying very expensive condos in Manhattan? The Old Grey Lady had to do a lot of digging to get through LLC screens and to identify straw men.) It wasn’t until I was well into the pricing analysis for this post that I examined the mortgage through Property Shark. I was shocked to see recognizable names as signatories for The Unfortunate LLC.

Unless Steven Soderbergh and wife Jules Asner are flunkies for still-higher level money, they are the folks who just flushed about a million and a half bucks down this Franklin Street toilet. (See their signatures “as Managing Member” of the borrower LLC on pages 23 and 25 of the mortgage.)

Scratching my head….

People better versed than I in The Celebrity World will have a better angle on understanding whether there is public information available that would explain why this Famous And (formerly?) Very Rich Couple pulled the plug on this disaster in Tribeca. Most likely they’re really not flippers, but bought the thing to live in, paid that architect to design “Tribeca’s most prized home”, commenced demolition, and then …. Something. Happened.

Something. Calamitous. In fact.

No one sets out to do this, even if they are intent on burning cash. (There are easier ways to burn cash.) Maybe the inter-tubes already know what’s going on with this Hollywood couple (cash crunch? bankruptcy? ??), but it’s got to be something. It’s not every day that you see a Tribeca dog (a fine breed, that) bitten by a man (even a rich man).

the More Money Than God update (2/27)

The New York Post has a piece on this Tribeca condo loft celebrity-magnet, which addresses the Soderbergh deal, apparently posted while I was still editing this post. They treat this buy-high-sell-low experience as no big deal, noting simply that

The spread eventually traded hands for $5.52 million, according to city records, a slight loss from the $5.86 million Soderbergh shelled out in 2013 for the space, records also show.

Of course, “a slight loss” doesn’t begin to cover it, but it all seems part of A Grand Plan:

The “Erin Brockovich” director had serious ambitions for the apartment, but then scrapped them, according to previous reports, which also say he ended up buying a larger loft in the nabe.

I missed those “previous reports”, possibly because they concern lofts at price points I don’t focus on, or possibly because they were on Page Six. The rich really are different. Sigh.

Note to self … find that larger loft (!) in Tribeca he preferred to loft #3N and play with that floor plan and those numbers …

another friggin’ update (the larger loft is … smaller!)

Tribeca Citizen clued me on The Twitter in to this from the New York Daily News: Soderbergh let someone else the do heavy lifting, and is buying a ground floor duplex at 7 Harrison Street (dubbed “the Atelier” in this new development). It is one heck of a space, though a tad smaller than loft #3N, with “3,135 sq ft” interior and a “300 sq ft” private garden, which features a 20-foot high ivy-covered wall. The garden sits outside the 23-foot high custom steel windows in the ‘salon’. Because Money.

The timeline suggests Soderbergh made the deal to buy this thing before putting loft #3N up for sale, unfinished. He’d let someone else worry about the renovation.Daily News says the deal has closed, but I don’t see it yet on StreetEasy or Property Shark, or the inter-firm database.

Ask was $8.5mm. As I said in my earlier update Feb 27:

The rich really are different. Sigh.