Keystone loft at 38 Warren Street sells up 15% in 11 months

after upgrades, not a renovation
Here is another one for buyers who are feeling that (their part of) the Manhattan loft world is moving against them: the “1,850 sq ft” Manhattan loft #7C at 38 Warren Street (Keystone Building) could have been purchased for $2.15mm a year ago (it was!), yet over New Year’s it could not be had for less than $2.475mm. That makes these the most cost-effective set of “upgrades” ever (at least, until further notice):

High-end upgrades in the chef’s kitchen include Sub-zero; Wolf and Miele appliances; brand new oak floors; newly finished 8ft doors with brushed nickel handles; electric Somfy shades, custom satin blinds and custom walk-in closets.

(Note that the floor plan is identical, in March 2012 and 9 months later.) From the sound of the “upgrades”, you’d think that someone bought it (then “upgraded”) to live in it more comfortably (electric shades, custom closets) and more luxuriously (new appliances, new floors, satin blinds, refinished doors with new handles). So I wonder what happened in 2012 to make him change his mind in this way:

it doesn’t sound like a plan
Seriously: $325,000 is a great big bang for not that many bucks. I just find it hard to believe that someone put in a new floor and changed a variety of one-off functional or decorative items with the intention of flipping for fun and profit. It was not as though the March-2012-buyer-turned-February-2013-seller might reasonably have supposed he got a bargain at $2.15mm that could be easily exploited, as the loft was then on the market for 2 months at $2.3mm before the contract was negotiated to $2.15mm. That was enough time exposed to a deep enough buyer pool to get (what should be) a “market” price. In other words, no obvious flipping opportunity there.

Then do the math: assume in round numbers the new handles and other upgrades cost $75,000. On a sale at $2.475mm (a price he was eager to accept), the seller paid a sales fee ($148,500) and transfer taxes ($45,169), so his basis is $2,418,669 (purchase + upgrade + sales fee + transfer taxes) even before considering his March 2012 buy-side expenses such as title insurance. It is obvious (isn’t it?) that no one does all this trying to earn the opportunity to pay taxes on something less than $55,000 in “gain”.

a lack of understanding
So, logic dictates that the guy changed his mind about living here sometime after committing to new floors, etc. Unless he paid a lot more for those upgrades than I think, this worked out for him financially, in the limited sense that he probably had a (small) net gain on buying, upgrading, and selling loft #7C. (Reduced by miscellaneous other expenses, such as the need to pay to live somewhere else while the new flooring was installed.)

What I don’t understand is why it worked out so well financially. Unless these upgrades are far more impressive in real life than as described or photographed, he generated much more value ($325,000) than expense ($75,000??). It took setting a building $/ft record to do that, but he did it easily (to market December 28, in contract January 14; hardly enough time to recover from a New Year’s hangover).

The only past sales in the building that approach or (seem to) exceed #7C at $1,338/ft (StreetEasy building page, here) drop back after adjusting for outdoor space. The “1,850 sq ft” (with same interior footprint as #7C loft #6C sold at $2,687,500 on September 12, 2007 (leading into The Peak), but that one came with “two large [wrap] planting terraces” (per the babble, but “736 sq ft” in our listing system). Assigning even a tiny (25% of interior) value to the outdoor space yields an adjusted value of #6C of $1,321/ft. I don’t see a surviving listing description, photo, or floor plan for the “1,248 sq ft” penthouse loft #9A anywhere when it sold way back on June 22, 2006 for a staggering $1.9mm, but our listing system has that one with a “648 sq ft” terrace. Assign a reasonable value to that exterior space of 50% the interior, and you get an adjusted value of $1,209/ft (you can goose this one above the #7C $1,338/ft by assigning the penthouse space a low value of 25% of the interior [to net an adjusted value of$1,347/ft], but that seems unfair to that penthouse).

In other words, this accidental flip of #7C from March 2012 at $2.15mm to February 2013 at $2.475mm “worked” only because The Market at the start of 2013 assigned a huge value to a set of upgrades made since 2012, and it took getting a building record high price on a $/ft basis to do it.

getting from many feet + limited utility to … regret?
I suspect that data-driven folks in the Tribeca loft buyer pool would have been put off by the #7C asking price of $2.595mm so soon after a $2.15mm clearing price. But (obviously) some Tribeca loft buyer snapped it quickly up at $2.475mm. Manhattan Loft Guy readers who have been paying close attention will remember my buyers who did not buy for $2.8mm the “1,900 sq ft” Tribeca loft that I hit in my February 26, 42 Hudson Street loft was a very tight fit to close at $1,474/ft. For those buyers, the story line for that loft overlooking Duane Park was the tight fit, especially of the (essential) third bedroom. Those buyers did not make a play for #7C, in part because of timing considerations with traveling over New Year’s and in part because my first reaction to the floor plan was that it is an awkward “2 convertible 3 Bedroom” (as the babble puts it) rather than a more natural layout convertible from 2 bedrooms to 3 real (windowed) bedrooms.

The floor plan works very well as a 2-bedroom, yielding rather extravagantly large bedrooms and a long and narrow open living / dining / kitchen with 6 windows. There is probably a way to erase the current lines and redraw 3 smaller bedrooms, with the 2 non-masters splitting more evenly those 2 north windows, but the simplest place to simply add a bedroom is in that northeast corner, eating up at least 3 windows, leaving an odd nook, and shrinking the volume of the great room (one of the most loft-y features of the space, as is).

Of course, the more work to be done, the more pressure is put on that already record-setting $1,338/ft. But if you are sensing regret here … yeah … there’s probably some. At not having taken a run at it, even though it is hard to make the rational (data-driven) case for the very quick clearing price.

No kidding around … the current market is a very difficult environment for many buyers. The #7C experience over the last 12 months is a personal poster child for me.

© Sandy Mattingly 2013