funny math as first Sterling Mason loft resells: when is a $200k gain not a gain?

(you know this) when your transaction costs far exceed the ‘gain’

The suburbanites who just sold the first loft to resell at the uber-loft conversion slash new construction Sterling Mason, the “2,042 sq ft” Manhattan loft #4A at 71 Laight Street, really wanted to sell (or they don’t care so much about money). Having bought in September 2015 for $3.9mm, they sold on April 28 for $4.1mm. In arithmetic, that’s a gain of $200,000. In real estate, however, the computation is not a simple A – B = C, because it cost them something to get that $4.1mm.

Reduce that $4.1mm by the big ticket expenses of $205,000 sales fee (5%, per our listing system) and again by the New York Star and New York City transfer taxes of $74,825 (1.825%) and they are slightly below water, at $3,820,175 in proceeds received at closing. But wait … there’s more! Figure they paid for title insurance when they bought (at least 0.6%, or $23,400) and Property Shark shows that they took a $1.4mm mortgage, on which the mortgage recording tax would have been $75,075 (at 1.925%). The new big ticket math (before round trip lawyer’s fees, condo fees, miscellaneous fees; did they have to make a capital contribution on purchase??) looks like this:

A = $4.1mm less $205,000 less $74,825 = 3,820,175

minus

B = $3.9mm plus $23,400 plus $75,075 = $3,998,475

equals

C = ($178,300)

In cash terms, they brought to the closing table to buy in 2015 (net of these expenses and the mortgage) $2,598,475 or so and got back at the closing table to sell in 2017 (net of those expenses, after paying the mortgage) $2,420,175 or so, realizing that loss of $178,300.

In other words, taking a hit of $178,300 was preferable to remaining an owner of loft #4A. How painful this was depends on what $178,300 means to them.

They didn’t set out to do this, of course:

Feb 3 new to market $4.5mm
Mar 7 $4.25mm
Mar 24 contract
April 28 sold $4.1mm

But the numbers are close enough that even a full-price sale at the discounted ask in March would have resulted in a net loss.

cold comfort is out-performing The Market

The owner’s financial hit aside, the loft appreciated in value over the time they owned it (that apparent $200,000 gain). From the time they bought (September 2015) to the time they sold (April 2017), the overall Manhattan residential real estate market, as measured by the StreetEasy Price Index, was up 2.39%. The $200k gain represents just over 5% of the purchase price. Congratulations!

But new development sales are fuzzy for these stats, as they typically have an abnormally long time between contract and closing compared to coop or condo resales. In this case, the StreetEasy history shows that loft #4A was already in contract by the time it hit public awareness in July 2014. If you looked back at the StreetEasy Price Index for September 2014, The Market was up 7.6%. This is just one of the ways that new development sales distort market stats.

neighbors may not appreciate the dirty laundry being aired

There is no question that the recent sale was an arm’s length transaction, one that is a specific market fact from which comparisons will be drawn. For neighbors, the #4A resale is a Bad Comp, most specifically in the “A” line. Click on the Past Sales tab for Sterling Mason on StreetEasy and you will see that two neighbors paid well more than the recent #4A sellers for their identical units (#3A was bought for $4,067,908 20 days before #4A was purchased, and #5A was bought for $4,276,650 two months later), while one on a lower floor (which would be expected to be worth less, at least to an appraiser) paid the same (#2A, bought at $3.9mm two weeks before).

If another similar unit in Sterling Mason were to come to market soon, that unit would face the headwinds that #4A cleared at (only) $4.1mm on April 28. Unless a buyer really wants to live in this building, it will be a while before the upstairs and downstairs neighbors will walk away from the closing table with meaningful (net) gains. Assuming, of course, that The Market is rational.

meanwhile, back in the loft …

The next “A” line buyer might really love the place. For a 33-unit condo, the amenity package is rich (per the building babble):

Library Lounge, Interior Courtyard, Private Fitness Room with Yoga & Exercise Studio, Children’s Playroom, Parking Garage, Private Storage, Bike Storage, Concierge, Doorman, Full-Time On-Premise Resident Manager

The amenities are priced accordingly, at $1.61/ft for common charges per month for loft #4A, with another $1.11/ft for real estate taxes.

The interior of the loft is consistent with its heritage and era: a Morris Adjami design, sold in the latest generation of Tribeca uber-lofts, with only the most proper proper names for appliances and materials. The coffered ceilings and cast-iron columns provide classic cred, and the layout (not quite a long-and-narrow, as the bedroom wing is much wider than the public wing) provides volume: “2,042 sq ft”, with only two bedrooms.

With all this deluxe luxe, it seems churlish to point out that the sense of volume is not enhanced by ceiling height, but … 9’6″ (ouch).

The “A” line is the smallest in the building, and appears not to have gotten the premium layout (note the window count in the floor plan). Other units are much larger, and seven neighbors paid more than $9mm to own here. As I said, the next “A” line buyer might really love the place, but the #4A data point will be a Bad Comp for a while.

a final note, courtesy of Mike Myers

I hit many of the new development points above in my March 27, Mike Myers doesn’t care about super luxury Tribeca loft market, because (money), featuring an even larger loss on a new development resale. But these paragraphs are pretty good, I think:

File this one under The New Development Market Is Different Than The Resale Market. This project (443 Greenwich Street) looked a lot better in the Fall of 2014 than it did two years later, or now. Perhaps the story is the simple one, oft repeated in the media in the last year: softness in the luxury market. After all, at least ten lofts were sold at 8-figure prices in this single project (a quick scan of the Past Sales tab on StreetEasy tells you that). Apparently, the supply of $10+ million buyers is finite. (Go figure.)

But I think there is another aspect of this (emphasis on I think): the new development Manhattan loft market is (I think) more susceptible to emotion-based swings than the resale loft market. (Call it herd mentality, if you prefer.) In part, this is a commodity thing.

Lofts tend to be sufficiently different from each other, even within the same building, that they can more fairly be given the over-used broker babble label “unique” than typical Manhattan “apartments”. Even lofts with the exact same footprint in mature residential loft buildings tend, over time to look very different from each other, as owners with different tastes and resources change. Not so for the four “A” line units at 443 Greenwich Street, all with the exact same “unparalleled combination of space, luxury finish, location, and privacy”, as the Sponsor Babble put it, on the exact same footprint.

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