pair of Tribeca loft sales at 27 Leonard Street show 15 feet of wall is worth about $200,000

not to pay the carpenter, but for the Manhattan loft buyers who had to have 2 bedrooms

The “1,636 sq ft” full-floor Manhattan loft on the 4th floor at 27 Leonard Street sold three weeks ago for $3mm. Its many charms include that it’s been “freshly renovated” in a no-detail-overlooked manner, “abundant sunshine”, a “gourmet” kitchen, and classic loft elements like exposed brick and beamed ceiling. But the key feature may be the little L-shaped wall at the top of this floor plan:

The 3rd floor loft was also in no detail-overlooked condition, with “a gorgeous new kitchen with top-of-the-line appliances“, and a floor plan that is identical to the 4th floor except for the north end of the loft, which lacks that “L”, so has one bedroom of nearly 400 sq ft where the loft above splits that space in two. Neither loft clears the roofline on the south side of Leonard Street, but it is possible that the 4th floor has more “abundant” sunshine than the 3rd floor, but I doubt the difference is material. The Market loved both lofts, but not quite as lovingly.

The 3rd floor took 4 weeks to get into contract before closing at the full price of $2.8mm on April 28. That’s a heck of a price, given that the last public sale in the building was in March 2007 and was then a building record high and just a tad under $2mm (this sale in January 2008 doesn’t count, despite looking like a market price, because it was clearly a related-party transaction).

You already know that the 4th floor just sold for $3mm, but the marketing campaign started as though the sellers and agent figured they should adjust slightly up for a slightly higher floor: they asked $2.875mm on May 17 and needed until June 20 to get into contract after sorting through at least two bidders, at least one of whom was willing to exceed that asking price. (It is possible that they also counted on a stronger market from April, but the StreetEasy Condo Index has the same value for the overall Manhattan residential real estate market in April and June [the most recent month in the Index].)

I haven’t seen the two lofts in real life (and under optimal sun), but I don’t read the broker babble or listing photos as presenting a difference in quality in the two lofts, just that one flight up and two bedrooms out of 400 sq ft of north wall instead of a large single bedroom on the lower floor. (Note that even the closet array is identical on the north end of both lofts.) You can see that there’s nothing fancy in the ‘extra’ wall on the 4th floor (it’s on the left in the master bedroom listing photo #7 and the right in the second bedroom photo #8). Is that the sort of carpentry and electrical work you can do for 4-figures? If not, it can’t creep much into the $10,000+ zone.

big bang meets little buck

To review, that (say) $10,000 in difference in build-out contributed to $200,000 in market value, under market conditions that are as similar as the StreetEasy Condo Index can show, in apparently otherwise equivalent condition.

And the recent 4th floor seller was not even the one who made the investment in the wall. The “Past Activity” tab on the StreetEasy building page shows that these two lofts were sold by the developer within 4 weeks of each other as 2000 turned into 2001, with the 3rd floor having a single bedroom and the 4th floor two. There’s always a danger in over-interpreting new development pricing (especially relatively ancient new development pricing such as this), but The Market way back when thought these two lofts were essentially equal in value, with the 4th floor selling for $993,000 and the 3rd floor for $995,000 4 weeks later.

If you just looked at the room counts (the way proper “apartments” are comped) you’d think that the second bedroom on the 4th floor really is worth $200,000 more than the 3rd floor, having only that one bedroom. Then some real estate pundit would talk about the buyer pool willing to spend around $3mm for a 2-bedroom home is deeper than the buyer pool willing to spend around $3mm for a 1-bedroom home. But the floor plans tell a different story. There’s nothing simpler than taking a classic Long-and-Narrow loft about 23 feet wide and adding a wall. (The kids or your guests are not going to win in a fight over the middle window.)

Not knowing the two sets of buyers or the two sets of sellers involved, or when the later buyers were in the market, I can’t know why the 4th floor sold for $200,000 more in flat market conditions. But if it really was because the 4th floor buyers would only buy a 2-bedroom, those people are nuts. The 3rd floor buyers could put up the same wall as is on the 4th floor, and (in theory) create $200,000 or so in market value by spending $10,000 or so.

To repeat: that’s nuts. The Market is not supposed to work that way. Even if there really is an appreciable difference in that “abundant” sun on the 4th floor. Stop me if you’ve heard this before: “The Market” is made up of the aggregate decisions of a multitude of buyers and sellers, while clearing prices for specific lofts are determined by specific buyers and specific sellers.

I know you’ve heard this before: comping is hard. So I really wonder what the bank appraiser for the 4th floor sale (if there was a mortgage) thought about all this. The 4th floor sold for 7% more than the 3rd floor, obviously in the same (no frills) building, 4 months later but in apparently identical overall market conditions.

The 4th floor buyers were in a bidding war, and did what they needed to do to win. I suspect that competition was a market-distorting circumstance here. I needed a good head scratch today; now I have it. Perhaps you did, too. Or perhaps you know enough of the details to offer a better explanation than that this is $200,000 worth of market noise.