least expensive Tribeca loft ($471/ft!!) is 5 flights up at 145 Chambers Street

is it the maintenance, Mars? [updated Oct 19 about the mortgage]
There are a lot of factors contributing to the very low market value of the “1,700 sq ft” Manhattan loft on the 5th floor at 145 Chambers Street as reflected in its sale on September 23 at $800,000, but first things, first: it is the lowest price per foot for any Tribeca loft sale tracked on my Master List of Manhattan Lofts Sold Since November 2008, which includes all downtown loft sales that I have observed in nearly three years between $500,000 and $5mm, and second-lowest price per foot of all 1,500+ loft sales on the list. Wowza.

The two most obvious numerical villains in this story are 4 and $4,354. This 5th floor loft lacks an elevator, so the walk up is 4 flights. The monthly maintenance in this small coop (5 stories, obviously, with no amenities) is an extraordinary $4,354/mo for this unit (for confirmation, it is a similar number for another recent listing and for a current one). Each of these numbers will severely shrink the buyer pool, as will the condition of the loft (assume that the broker babble that this loft “has the feeling of a true artist’s loft” means a complete gut job). In addition, there is an odd limitation on how large a mortgage a purchaser could take out, which I will address below.

I don’t believe I have ever seen a loft building with a higher $/ft maintenance obligation that this $2.56/ft. By way of comparison, this coop sits across the street from the new-in-2010 condo The Campbell at 148 Chambers Street, where the 2nd floor is almost as large as the 5th floor at 145 Chambers (“1,612 sq ft”) and has monthly taxes and common charges of $1,456, or $0.90/ft. If 145 Chambers has maintenance at even $1/ft, the ‘excess’ of $1.56/ft ($2,652/mo) would support a loan balance of almost $400,000 at 5%; in other words, carrying the 5th floor at $800,000 with the current maintenance of $4,354/mo is equivalent in monthly carrying costs of adding $400,000 to the mortgage on a 1.2mm purchase with a more typical maintenance of $1,700/mo.

diligence done?
There can’t be a red flag for pre-contract legal due diligence that is a deeper red than the huge monthly maintenance number. There should be a great deal of diligence done in any purchase in a small coop or condo (this one probably has only 4 full-floor units), as there is not much spreading of risk in such a small building.

There seems to be a simple but sobering reason for the high maintenance, the details of which would tell counsel for the new shareholder a lot about how this building operates: this coop pays $15,700.79 each month on its mortgage (detailed below), so each of 4 shareholders is on the hook for $3,925.20 just to pay the mortgage. What is interesting, or odd, or cautionary (depending on one’s perspective) is that [nearly all of] the underlying mortgage [principal] will [still need to] be paid off in June 2015, at which point the maintenance could be reduced from $4,354 to $429/mo [if they pay off the balloon that will be due, or be reduced or even increased depending on what they do with that building debt; see below.].

It is weird (to me) that there is no hint of this in the babble, but it was not my listing. A buyer could have looked at the 5th floor as an opportunity to (a) pay $800,000 for the loft plus (b) to put away enough to pay the proportionate share of the mortgage to maturity (33 months, or another $129,531.60), after which (in July 2015) the ridiculously-high maintenance could be reduced to well-below-average, for the opportunity (c) to pay to build out a beautiful loft (another $300,000+ ??).

This all works … assuming all your 3 fellow shareholders are good for their maintenance shares in the meantime. Fascinating stuff! Or interesting, or odd, or cautionary (depending on one’s perspective).

It appears that this former rental building took steps to become a coop almost a year ago, including entering into a mortgage modification agreement that shows a loan for $2,439,729.76 at 6.25% payable monthly from December 1, 2010 through June 1, 2015 ($15,700.79) (see p 3 of 12 of that filing). Presumably, the building could not get a longer term loan modification to bring the monthly costs below the extraordinary level. Some smart lawyer probably figured out for the 5th floor buyers why that structure was used, instead of others.

all this, and a severe (but imprecise) mortgage limit
By the time the 5th floor buyers signed the contract, they would have dealt with the significant limitation in the loan modification agreement that any buyer could put on a mortgage of either $700,000 or 50% of the appraised value of the unit, whichever is less (see p 4 of 12, the paragraph “Coop Conversion”). How do you appraise such a loft, with all these … wrinkles? The value is ‘artificially’ reduced by high maintenance caused by the short-term amortizing loan and by the loan limitation itself, each of which is a real but temporary damper on the value. And how is that limit tested or enforced?

The 5th floor came to market on March 5 at $1.2mm and had to drop the price twice before attracting the buyers who close more than 6 months after launch. One is tempted to say that the ‘appraised value’ may be the $800,000 that these buyers agreed to pay, as there is precious little basis for finding a principled way to back out a theoretical value under these conditions, apart from the simple fact of this deal. If so, the maximum mortgage for the 5th floor at this point is $400,000, meaning that these people needed at least another $400,000 in cash as their down payment, plus the $129,531.60 they will contribute to paying down [interest on] the underlying mortgage by June 2015, plus whatever cash they need to renovate.

[As I say in response to reader Modern in the Comments, the limit on shareholder financiing may help shareholders in June 2015 when they consider whether to refinance over the loan, take out a new smaller loan, or pay it off (perhaps by increasing their own mortgages). Thanks to reader Modern for pointing out what I had missed about the loan.]

No wonder this is the least expensive loft to sell in Tribeca in at least 3 years, on a dollar per foot basis!

Stepping back and looking at this structure, it appears as though the building owner converted the building to coop without doing any additional work. What had been legal rental residential units (with a Certificate of Occupancy, presumably) became coop units with “the feeling of a true artist’s loft”. Whatever the prior financing on the building, the December 2010 loan modification agreement rolled it into a 6.25% [balloon] loan fully amortizing in 54 months, meaning that the old loan will be paid by new shareholders[, one way or another]. If this is a poor man’s way to do a coop conversion, some smart lawyer better have figured out what other risks this attitude might pose for buyers.

Fascinating stuff! Or interesting, or odd, or cautionary (depending on one’s perspective).

about that record-setting price…
The last time I was tempted to scan the market for really low prices on a dollar per foot basis was my February 16, Chelsea Mews loft sells before 2nd birthday, barely + under $500/ft, barely. At that point, I went back about a year, to find a select club:

the 500 club

A quick scan of the Master List of Manhattan Lofts Sold Since November 2008 shows only six lofts that sold in the last year near the $492/ft that #1J got:

• 1 Bond St #2C Dec 15, 2010 $500/ft
• 154 West 18 St #2B July 28, 2010 $534/ft
• 176 Broadway #8F July 28, 2010 $519/ft
• 476 Broadway #2F June 25, 2010 $503/ft
• 251 West 19 St #1D Mar 29, 2010 $509/ft
• 148 West 23 St #2F Mar 16, 2010 $540/ft
  
  That is pretty select company. Indeed, no Manhattan loft has sold for less in (at least) a year.

This time I went back all the way to the beginning of my list, finding that the 500 Club has 23 members, and that I would have found another member of the 400 Club for that February 16 post had I gone back to October 2009, which is when the All Time Record Low Sale Loft sold, even lower than the 5th floor at 145 Chambers Street. There are now 3 members of the 400 Club:

• 144 West 27 St #5R $458/ft (the listing is here)
• 145 Chambers St #5 $471/ft
• 148 West 23 St #1J [Chelsea Mews] $492/ft

Here is the full 500 Club from the Master List, going all the way back to November 2008 (hint: it is the $515/ft):

• 1 Bond St #2C [Robbins + Appleton] $500/ft
• 476 Broadway #2F $503/ft
• 251 West 19 St #1D $509/ft
• 70 Thomas St #5 $511/ft
• 176 Broadway #PH E $515/ft
• 176 Broadway #8F $519/ft
• 154 West 18 St #2B [Hellmuth Building] $534/ft
• 3 Hanover Sq #20FG $538/ft
• 41 Murray St #2 $541/ft
• 80 Warren St #32 $547/ft
• 16 Desbrosses St #6N $547/ft
• 118 Forsyth Street #1 $550/ft
• 303 East 57 Street #6AB $550/ft
• 9 Murray Street #5SE $551/ft
• 718 Broadway #2 $569/ft
• 233 West 26 Street #2E $572/ft
• 284 Lafayette St #2C $583/ft
• 275 Water Street #2-3 $586/ft
• 55 Liberty St #16D [Liberty Tower] $589/ft
• 56 West 16 Street #2 $591/ft
• 145 West 27 St #6E $593/ft
• 459 West Broadway #2S-E $593/ft

Note to self: (one day …) play with the commonalities on this list, apart from the obvious over-representation of Manhattan Loft Guy fave 176 Broadway.

© Sandy Mattingly 2011