(bear with me, I’ll explain)
Until recently, the last loft to sell in this small (6-unit) condo loft conversion in way east Tribeca was the “2,563 sq ft” second floor at 81 White Street, which closed for $3.29mm in April 2015. I saw that one at the time, with clients who found the finishes lovely, the layout rather strange (“uniquely designed”, in broker babble), the classic loft elements delightful, and the micro-neighborhood a bit remote. Nonetheless, that sale established a base-line value for a well-finished classic loft way over by the courthouses in the early 2105 market at $1,284/ft.
Which is a roundabout way of introducing the 6th floor unit, which sold three weeks ago at the $5mm ask. A true penthouse, the top-floor loft has the same full floor footprint as on the second (and other) floors, plus a large interior space built on the roof, plus three terraces. All told, that’s “3,625 sq ft” of interior space and another “2,750 sq ft” among the three terraces.
Let’s (try to) ignore the outdoor space for a moment …. With “3,625 sq ft” inside, the asking / selling price of $5 million comes to $1,379/ft. To compare this penthouse sale to the second floor sale in 2015 (remember: $1,284/ft), we’d have to adjust for time, for condition (possibly), for light, and for the outdoor space.
I will spoil the ending for you, then go back and show my work. The $5 million for the penthouse is such a ridiculous per-square-foot price compared to the second floor that I would be dumbfounded, were I not overly inclined to type, and type some more, in an attempt to ponder this bizarre event.
(I’m going into the weeds a bit, so if you’re satisfied with the spoiler, skip to the next bold heading.)
I like the StreetEasy Manhattan Price Index as a single-number proxy for the overall Manhattan residential real estate market. You have to scroll down and hover here, but you’ll see that in April 2015 that Index was at $1,092,838 and was $1,160,419 in June 2018 (the most recent month available, alas). In other words, the overall Manhattan market was not quite flat, ‘up’ 6% from the time the second floor loft sold and the most recent month of data before the penthouse sale. Maths: 6% of the April 2015 second floor per-foot value is $79/ft.
As I mentioned, I’ve see the second floor. I’m inclined to think (from the photos and babbling) that the quality of finishes is higher in the penthouse, and that floor plan much more sensible and adaptable (if you want more than one true bedroom) than on the second floor; I might be inclined to be conservative about this comparative feature and to call it a wash, but the scale of the more open interior on the 6th floor, especially with 17 ft ceilings (versus the not-too-shabby 13 ft on the lower floor), is pretty compelling. Conservatively, that’s a modest premium factor in favor of the penthouse space.
Not much light on the second floor (and no apparent direct light), despite the large windows front and back. The penthouse main level is about 60 feet higher in elevation than the lower floor loft, and the photos suggest decent-or-perhaps-better light through those taller windows on the sixth floor and much better light on the rooftop level. Conservatively, that’s another at least modest premium factor for the penthouse.
If you’ve been following along, that’s two modest premium factors for the penthouse, plus a $79/ft time adjustment in favor of the penthouse, over the observed second floor market value. Time alone accounts for nearly all the difference ($1,284/ft + $79/ft = $1,363/ft, compared to $1,379/ft for the penthouse counting only the interior), so I’m not going to even try to guess what the (conservatively!) modest premiums the penthouse should have earned for the finishes / scale or for better light.
If the penthouse had no outdoor space, I’d struggle with reconciling these two same-building sales. I’d consider hindsight rationalizations that don’t feel very strong, or susceptible to empirical testing.
Such as, maybe there just aren’t many $5 million buyers who want to live in this (still fringe-y for Tribeca) remote area, hard by an edge of Chinatown and a row of courthouses. Or, not that many $5 million buyers who want to take on small-building risk in a condominium that lacks a doorman or any other amenities.
Or maybe I’d consider (and find a way to test) that the penthouse loft needs a downward reduction in per-foot (interior!) value because it is more space than many humans would want, and 40% larger on the inside than the second floor loft. But this is getting ridiculous, even for Manhattan Loft Guy.
Without some hindsight rationalization, the penthouse interior ‘should’ (objectively / empirically / rationally) be worth as much if not more than the second floor interior. That cannot be a controversial conclusion.
the elephant in the room is outside
(Welcome back, readers who skipped 8 paragraphs.)
We’ve established that the penthouse loft at 81 White Street should have sold last month for a little bit more than the second floor sale from April 2015, on a per-interior-foot basis. Which it did!
But but but but BUT …
You already know that the penthouse has three terraces that total an additional “2,750 sq ft” (that is, an exterior larger than the second floor interior). You would know (if you clicked on the listing description and photos) that the three terraces are pretty darn sweet.
al fresco dining, under the water tower
lower lounge, with fire pit (+ bocce!)
Contrary to all the snarking arithmetic I’ve done comparing the second floor loft sale in 2015 and the penthouse sale last month, these terraces are very valuable.
My starting point for the question of how to value outdoor space in a Manhattan loft is always The Miller, specifically, my May 6, 2010, riffing with The Miller on the value of Manhattan terraces, decks + balconies, where you will see that his rubric posits a normal range of 25% to 50% of the value of interior space, and I consider some possible enhancers.
As above, I’d generally consider things like whether the outdoor spaces are disproportionately too large (potentially, a discount factor), or the scarcity of truly private outdoor space in Tribeca (potentially, a premium factor), or the huge utility of such varied outdoor choices (potentially, another premium factor). But, as I said above, this is getting ridiculous, even for Manhattan Loft Guy.
Hence, my headline that the seller threw in three free terraces to get the gorgeous loft sold.
(Deep breaths ….)
Let’s be conservative and assume that the exterior space for the penthouse loft at 81 White Street is worth only 25% of the value of the interior on a price-per-foot basis, mostly due to a discount for being ‘too big’. That math looks like this:
$5 million value divided by 4,312 sq ft (3,625 interior + 687 [1/4 of 2,750 exterior]) = $1,159/ft
Ridiculous as that is, the math looks worse if the exterior space is worth as much as 50% of the value of the interior (a round number $1,000/ft).
true reconciliation can be a pipe dream in an irrational world
The Market has given us two Facts at 81 White Street.
- the “2,563 sq ft” second floor loft was worth exactly $3.29mm in April 2015, or $1,284/ft
- the “3,625 sq ft” penthouse loft was worth exactly $5mm in October 2018, or $1,379/ft (interior only), and it has “2,750 sq ft” in outdoor space (which, as you well know, confuses the hell out of me because the terraces cannot have been ‘free’)
The initial factual conclusion from these two data points is that The Market preferred the lower floor loft to the penthouse on a price-per-foot basis (note the qualifier).
We can apply General Principles to try to see how these Facts can fit together, but we quickly get beyond specific and directly relevant facts. And none of it makes ‘sense’, anyway.
- StreetEasy thinks the overall Manhattan market is up 6% from April 2015 well into 2018
- Manhattan Loft Guy thinks that lofts are appropriately and generally compared on a price-per-foot-basis
- The Miller thinks that larger units are generally more valuable than smaller units on a price-per-foot basis
- The Miller thinks that outdoor space is generally valued at 25% to 50% of the value of the interior on a price-per-foot basis
- there is much industry chatter about softening in the luxury market through 2018 (this includes $5 million properties; here’s just one example from The Real Deal today: “… the market slowdown has been particularly tough on high-end condos”)
- The Market is never wrong, in the tautological sense that each individual sale is at the ‘right’ price, but The (Overall) Market is the result of decisions of hundreds and hundreds of individual buyers and individual sellers that get aggregated into average and median data ‘points’
My take-away is that sometimes you have to acknowledge that Facts conflict to such a degree that post-hoc rationalizations get sillier and sillier. Today is one of those days, and 81 White Street presents two such Facts.
(A tip of the Manhattan Loft Guy hat to reader CT for bringing this conundrum to my attention.)