about that bidding war for (not THAT) well-dressed 395 Broadway loft

after a day for love, many loved this loft, only one was chosen (sigh)
There were broken hearts all over the highway when the bidding war for the “1,200 sq ft” Manhattan loft #14A at 395 Broadway came to an end on November 6, then jaws dropped when word got out soon thereafter that the winning bid was above $2mm. I should know: one of my clients was left well behind. There has been a lot of this going on in the current Manhattan residential real estate market of late, but none that I know that is quite so … extreme. Extreme in the spread between ask ($1.675mm) and closing price ($2.016mm); extreme with the number of bids (18, I believe); and extreme in the degree to which the clearing price exceeds any reasonable comps analysis (i.e., is almost certain not to appraise).

Let’s start with the loft, then look at the (pretty persuasive) comps.

only modest in size
The broker babble is a model of specificity and enthusiasm, abounding with hints and nudges. Skeptical readers (my kind of readers!) were prepared to assess for themselves whether the light and views, the finishes and detail, and the efficiency and luxury looked in real life as presented in the babble and photos. (Not-a-true-spoiler alert: 18 bids, clearing 20% above ask; The Market was rather impressed.)

High Floor* SUN-BLASTED TriBeCa, Pre-war Condo – featuring- 2 Beds and 2 stunning designer baths, approx 10,5 foot ceilings, gorgeous wide plank oak wood floors, with proper CHEFS KITCHEN – centrally located for entertaining on a grand scale. The Kitchen has all the necessary accoutrements- top of the line Sub Zero, Miele DW, custom shelving,vintage marble and breakfast bar. The LOFT also has 9 OVER SIZED, CORNER WINDOWS w/ dramatic, open City Views, from 3 exposures, with massive south facing picture window in the Master bedroom. The master bedroom has a walk-in closet and dressing area, and an enormous spa-like en-suite bath with an over-sized soaking tub and elegant features throughout. The 2nd full bath features a large steam shower and is decked out vintage marble & slate. No space is wasted in this loft, with an abundance of custom closet storage built-in throughout.

Notice all the things described in some way as large: the planks on the floor; the entertaining scale that is possible; the windows; a bathroom, a tub, and a shower; and the custom storage. The floor plan, however, is a mere “1,200 sq ft”, with some challenging (inefficient) angles. To squeeze in two bedrooms, two baths, and abundant storage, you’re left with a second bedroom that is 10×8 feet (including closets) and a master that would feel more like 11’3”x13’7” if it did not have those huge corner windows.

But for the windows, the entire loft would feel small, with all that utility crammed into “1,200 sq ft”. All the babbling about “wide”, “grand”, “massive”, “enormous” notwithstanding.

In the frenetic market for 2-bedroom lofts in Tribeca, however, this scale was more a feature than a bug. For the (many!) buyers for whom the space is big enough, the benefit of smaller space is a lower purchase price (even after a bloody bidding war). For space of this quality (in terms of finishes and light) there are not many choices in Tribeca, so buyers were evidently willing to overpay.

As the babble notes, “this beautiful home was also featured in the NY Times”, but that T Magazine piece was more Tribeca society and lifestyle than loft, alas. The publicity does support the “entertaining on a grand scale” enthusiasm, if subtly.

comping out, flaming out
My client is from the school of give-me-facts-and-advice-and-I-will-make-up-my-mind, which is one of my favorite schools. In the case of this 64-unit condo, there happens to have been a relatively rich and highly relevant past sales history, with 6 sales between December 2010 and August 2012 of units of “1,163 sq ft” (2 sales), “1,200 sq ft” (3 sales) and “1,300 sq ft” (one sale, but with a footprint that matches that of the “1,200 sq ft” #14A), at prices in a narrow range from $1.15mm to $1.365mm. The top price was for the “1,163 sq ft” #11A (with that same footprint as #14A) on February 2, 2012. That one was well-dressed, with a “sleek renovated kitchen” but only one “fully renovated and modern bathroom”, and it lacked the south bedroom window that gives #14A that wonderful downtown manhattan view (listing pic #2, with the aggressive clouds).

In light of #11A at $1.365mm, the #14A ask of $1.675mm 10 months later puts a pretty high premium on the (higher) quality of finishes, extra bathroom, and extra window in #14A compared to #11A, doesn’t it? But the other sales suggest that either #11A sold low, or was not as nice as appears in the listing. Readers of Manhattan Loft Guy would have been aware of that issue, from my February 22, 2012, 395 Broadway loft sells at $1,174/ft, a relative bargain to a gut job. The precise comparison in that post was to a sale highly relevant to #14A, which I hit a year earlier

in my January 26, 2011, gut job loft at 395 Broadway provokes war, gets $1,000/ft,. That loft #15A was marketed on a floor plan and description emphasizing light and views (“[n]eeds complete gutting”), and cleared at $1.201mm ($1,033/ft), a $151,000 premium over the ask.

The full history at 395 Broadway going back to December 2010 suggests that the lofts in need of gut renovation are better comps for #14A than the well-babbled #11A, which is a low-end outlier. In my September 15, 2012, efficient market for primitive loft space at 395 Broadway, I reviewed the 6 sales before the spectacular #14A, noting

That embarrassing $1,365,00 aside (it was both mint-y and well lighted, with a “beautiful and bright city skyline view”; a pair of plusses that none of the other 395 Broadway lofts have had when they sold), that is an average of $1,211,700 for the other five and if you do the Olympic drop-high-AND-low score thing you have four lofts trading within $74,000 of each other, or 6%. A range that can always be offered as mere market noise….

That $1,211,700 is the real number to keep in mind in this building, though it needs adjustment as none of the loft sales in that data set had all of high floor + high finish + light that #14A can (justifiably) boast of. Now compare that $1,211,700 average to #14A, coming to market at $1.675mm on October 25. You can’t build light like that in #14A on a lower floor, but you can make any of those lower floor more primitive lofts look as nice as #14A if you have the money, taste, and access to talent. remember: #14A is only “1,200 sq ft”.

Put $350/ft in renovation costs into the average of the others, and you are still (just) below the ask for #14A.

how to measure the value added in a renovation
Of course, we don’t know what the recent sellers paid to renovate after buying#14A as a bring-your-architect special on April 20, 2007 at $1.165mm, pretty much right in line with an efficient market for gut-renovation lofts in this building, even allowing that they bought a year before The Peak. We do know from the biography hints in that T Magazine piece that both owners are in the creative and style class, and that he (at least) is likely to have access to quality designers and craftsfolk. Whatever they paid for the renovation after April 2007 is probably less than unconnected owners would have paid, but that is not the test of how much ‘value’ they added in the renovation.

My client was interested enough to bid well above ask, so he believed that the renovation added more than a half million in value since April 2007. Fact is, The Market just decided that the additional value from the renovation was $851,000, exactly. It was that one buyer, under the pressure of 17 other bidders, who decided what loft #14A is worth.

Let’s take a look at the sequence here, before taking a step back from the market dynamics to look at this from altitude. The loft was offered at $1.675mm on October 25 and went Best & Final on Tuesday, November 6 (the updated babble says November 4, but that Tuesday was November 6, and that was the day my guy bid). In those 12 days, 18 people expressed serious interest by submitting bids. Only the sellers and their agents know the spread of bids, of course, but I would like to believe that my guy did not finish second. here’s the kicker: remember that period at the end of October in which all this sales activity occurred? There was a hurricane-with-awkward-name-turned-tropical-storm that landed in New York on Monday, October 29; let’s just say that it screwed up the real estate market in Manhattan, and power downtown, after landing that night.

Stepping back from this dynamic sequence to cold hard facts, before October 25, 2012 no one looking at market data could have thought that loft #14A was worth anything close to $2.016mm. The initial ask was in the range of a reasonable upper limit, based on 6 data points of lofts of the same size, in the same building, from December 2010 through August 2012, all in a reasonably narrow range. There is no reason to think that anything about this building became more attractive to The Market in the Fall of 2012. There are no reasonable comp adjustments in favor of #14A over the prior 6 sales that I can imagine that justify #14A at 48% more than the prior building high sale.

I am sure there was no mortgage contingency on the winning bid. I would love to see the bank appraisal if there was a mortgage.

© Sandy Mattingly 2013