was year-end loft sale at 101 Warren Street motivated by tax uncertainty?

the gain might make it worthwhile to have worried about tax uncertainty
My rant about the Tax Uncertainty Meme that ran through the Manhattan Media Division of the Real Estate Industrial Complex (January 4, in which Manhattan Loft Guy bravely calls BS on the Market Trend Meme Of The Day) provoked a Twitter dialogue with The Miller (@ManhattnLoftGuy v. @JonathanMiller on January 13-14, for those of you into Twitter), as The Miller continues to believe that some significant late 2012 sales activity was motivated by concern that 2013 gains would be taxed at much higher rates than 2012 gains. I had the chance last week to talk to The Miller mano a mano (if hands could talk), which should be the subject of a separate post. As I said in my original post, no doubt some sales were tax-motivated, but they are hard to identify, and I have my (continuing) doubts that there were enough of them to really move The Market. 

All of which is a long way to introduce a Manhattan loft sale that might actually fit the profile of a Tax Uncertainty sale: the “1,592 sq ft” Manhattan loft #2440 at 101 Warren Street closed on December 31 at $3.35mm, with an apparently large enough gain that capital gains tax avoidance  minimization might account for the end-of-year closing. Clearly, nothing closed on that last day of the year because it was convenient for all people at the closing table; anything that closed that day was inconvenient for most, but essential for someone involved in the deal. (Without knowing a great deal more about the seller and buyers we can’t know if it was more important for the seller to sell or the buyers to buy in 2012, but the dates and prices give a context for talking about year-end deals and that darn meme.)

searching, and more searching
I talked in that January 4 post about the characteristics of 4Q12 transactions that might have been motivated by tax considerations, including having a large gain and some indication of ‘hurrying’. (As an interesting aside, The Miller is not so big on the hurrying part of the Tax Uncertainty Meme, explaining to me last week that he saw a lot of tax-planning deals put in motion in the middle of 2012.) For loft #2440, the single seller at $3.35mm paid only $2,632,176 when buying from the sponsor in January 2009. Before considering sales expenses or anything else that reduced the taxable gain, there is up to $717,824 that a taxing authority would be interested in. If the seller is an individual for tax purposes (as the deed record implies) the non-recognition-of-gain portion is limited to $250,000. The balance of $467,824 is at risk from the tax man (men!).

At the 15% capital gains rate in 2012, the feds would want as much as $70,174 after that December 31 closing. If that single taxpayer were at the top marginal rate, the worst uncertainty was that the gain would be taxed at 39.6%, or $185,258. Six figures of tax difference would be pretty motivating to many people.

The timing doesn’t suggest any hurry, but this may have been a plan-ahead-to-avoid-2013 sale. The seller started on July 30 at $3.5mm and took a reasonable discount to get to contract by October 5 at $3.35mm. If anything, the closing took rather longer after contract than many condo sales do, as condo boards generally add only the 30 day first refusal waiver period to the post-contract time it takes to close.

I also suggested in that January 4 post that evidence of a larger than expected discount might hint at 4Q12 transactions that might have been motivated by tax considerations. Don’t find any of that in connection with loft #2440. Of the 18 prior sales in this condo in 2012, only one exceeds the $2,104/ft that #2440 garnered. (That was #2250, which sold at $2,270/ft, 10% above ask in July 2012.) No reason to guess based on these comps that the #2440 seller gave the buyers a break to avoid closing in 2013.

In sum, this seller may well have really wanted to avoid higher taxes by selling in 2012. I stick by my January 4 point: there’s no way to tell that from the cold sales data.

In case one of you weisenheimers notes the clever thing I did in talking about “the 18 prior sales in this condo in 2012” as the relevant pool in which to comp #2440, you can go through the same analysis for the just recorded (yesterday!) deed for the “2,180 sq ft” Manhattan loft #3060, which also sold on that oh so suggestive last day of the year. That one was sold by an LLC, which complicates tax considerations, and dealt with a much larger gain than #2440 ($1,372,016). Another one that really wanted to avoid higher taxes by selling in 2012, but can’t be proven as such without inside information. In this case, #3060 sold at $2,225/ft, the highest $/ft value of the year of 20 sales in 2012, so no evidence of ‘hurry’ there. I can’t tell when it went into contract, but that was offered on April 3, so if there is a tax uncertainty motivation, the LLC planned well ahead.

There is a datum suggesting that #3060 was sold to take advantage of improved market values, rather than to avoid taxes, despite the December 31 closing: they tried to sell for 2 months in 2011 at a much lower price ($4.5mm). That alone suggests that they came out in April 2012 at $5.125mm to test the top of the hyper-local market, rather than to avoid 2013 tax rates. The sale at $2,270/ft is a sign that they aced that test.

© Sandy Mattingly 2013


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