spectacular renovation of Village penthouse loft is not quite as well received as renovator hoped at 42 East 12 Street

Manhattan loft renovations don’t get much more gut than this

In the broker babbling world, it seems that no modifier faces a bridge too far. Most often, these flights of linguistic fancy crash and burn (“unique” should be allergic to modifiers), but in the case of the “1,760 sq ft” penthouse loft #7 at 42 East 12 Street the locution “total gut renovation” is a useful introduction. On the one hand, a gut is a gut is a gut, as there is no category for demolition beyond “total”, which is what “gut” means (should mean); on the other hand, a loft that, once gutted, has been rebuilt with new flooring (“sound proofed with extra insulation”), and central air, and a dropped ceiling with custom lighting and sound, and new windows, and radiant bathroom floors, and “Steve Morris’ custom iron columns” takes the loft into “uber” territory. Lots of loft renovations claim “[n]o expense was spared”, but few of those replace the floors and sub-floors or install new columns.

In other words, let’s not talk about demolition, let’s talk about creation. The recent sellers of this Greenwich Village penthouse loft created a wonderful loft out of a loft that, when they bought it in December 2012 for $2.4mm, had been babbled as having “exposed brick walls in excellent condition [and] original tin ceilings”, yet it “await[ed] your creative input, taste and design”. It was then a loft in which (cue the punctuation machine …) “[e]ndless possibilties abound!”

Their input, taste and design had a preference for brick but not for tin ceilings, alas. So the living room that used to look like this:

brick, but also tin ceilings (with exposed electrical and sprinkler) + window a/c

became this:

perhaps even more brick, but new ceiling, new windows, and those custom columns

A totally different feel, right?

playing with numbers, a Manhattan Loft Guy tradition since 2006 …

Before getting to more of the loft’s charms, let’s skip to the bottom line. The December 2012 buyers thought The Market would love their “creative input, taste and design” a bit more than it did, as they came out at $4.2mm on October 16, 2014, and needed a price drop to $3.95mm to get into the contract by February 20 that closed on April 30 for (only) $3.7mm. That had to sting.

The StreetEasy Manhattan Condo Index implies that the loft would have been worth without any renovation just over $3mm (the Index is up 27% from December 2012 to February 2015). You see where this is going, right? We played Guess The Budget about renovations in Chelsea (in my June 4, million dollar renovation at 144 West 27th Street?) and on a Greenwich Village block just south of today’s loft (in my June 5, there are spectacular Manhattan loft renovations, then there’s this 54 East 11 Street loft renovation), so I won’t repeat the principles or process (or limitations!).

In the earlier case, I guesstimated that the High Kicking Seller didn’t profit much because of the renovation from a round trip (with renovation) of a “2,400 sq ft” loft on a very similar schedule to that of today’s penthouse loft. (That one was bought in November 2012 for $1.65mm, renovated “beyond aesthetic reproach”, and sold last month for $3.125mm.) The “2,200 sq ft” loft on East 11th Street looked like a very different Guess The Budget result, having been bought in June 2011 for $1.925mm and sold in April for $4.3mm, with (very likely) a significant premium for the renovation.

Today’s penthouse loft didn’t reach the dollar level of the 54 East 11 Street level, but it’s only “1,760 sq ft”, so it closed higher on a dollar-per-foot basis ($2,102/ft v. $1,955/ft). Sadly, for the recent sellers, the 42 East 12th Street penthouse was purchased for $2.4mm, while the 54 East 11th Street loft was (only) $1.925mm. That one was babbled as using materials that “exceed that of the finest hotels”, so it may well be the equal in quality of today’s loft a block north.

The economics of the two round trips are very different, with the sellers of the 54 East 11th Street loft having created significantly more value through the renovation than a simple adjustment for time and condition would imply. Today’s penthouse sellers? Not so much, as the loft would have been worth about $3mm if they hadn’t gutted it; they got only $3.7mm after what is clearly a magnificent re-creation. That $700,000 difference is (only!) about $400/ft, so if that’s what the 42 East 12 Street renovation project cost, they were flat.  Any more than $400/ft for the renovation, and The Market yielded less than a dollar in sales price for every dollar spent in renovating.

Assuming a $400/ft renovation budget at 54 East 11 Street, however, and those sellers realized about $700,000 more than A + B, where “A” is the time-adjusted value of the loft and “B” is a renovation creating one dollar in value for every dollar in budget. That’s about $1.78 in value for every $1 spent, after the time adjustment. For the 144 West 27th Street recent seller, the math is more daunting still. That seller broke even (i.e., got dollar for dollar for the renovation) with a budget of $300/ft and above that The Market yielded less than a dollar in sales price for every dollar spent in renovating.

It’s arithmetic like this that tells me that most people don’t buy lofts that need renovation with the plan to sell in just a few years. There’s just not enough money in it, and too much uncertainty. None of these sellers (at 144 West 27th Street, 54 East 11th Street, or 42 East 12th Street) lived in their loft more than a couple of years post-renovation, and they carried two residences in the time it took to do their renovation. There are eight million stories in the naked city, and these three sellers can tell at least three of them. I suspect the stories had little to do with economics, and more with Life . At least, I hope so.

meanwhile back in the penthouse on 12th Street …

Like the West 27 Street renovation, and unlike the East 11th Street renovation, the penthouse renovation at 42 East 12 Street left the prior layout substantially unchanged. In this case, the classic Long-and-Narrow footprint used to have a single bedroom across the rear; now it has two.

Before: basically, no walls, with the front corner fitting a home office and all the plumbing behind the elevator

After: walls added only to split 2 BRs in rear; still a home office in front; plumbing rooms are all new, but located as before (a little longer, but on the same wall)

There are only so many ways to split up a classic Long-and-Narrow loft that has no side windows. The 2012 owners were happy in a One Bed Wonder with the authentic loft elements of brick, tin ceilings, exposed mechanicals. The new 2012 buyers brought their “creative input, taste and design” to the finishes, but there’s nothing creative about an owner who needs two bedrooms to split the rear wall in a Long-and-Narrow Manhattan loft. They liked the authentic brick, but not the tin ceiling, or the sprinklers.

I love that they didn’t sheath the plumbing riser, but am uncertain about the custom columns (which don’t appear to, you know, hold anything up):

After, looking to the (now closed) bedroom end, with new columns + an old riser

Before: we see all the way to the rear wall, we see the riser (+ pipes later re-routed), + we see no need for columns on the right wall

As with the 54 East 11th Street renovation, the 2012 buyers at 42 East 12th Street dropped the ceiling, obscuring the tin ceilings and sprinklers. I’m not a fan, generally, but admit the overall look is clean, and lovely. As a snob, however, I wish they wouldn’t do that.

some former neighbors are jealous

I love it when there are fairly recent sales in small loft buildings that yield reference points for post-renvaotion very recent sales. That was the case with each of the renovated lofts discussed here.

At the 6-unit 42 East 12 Street, we have a September 2014 sale of the “Pristine Gut Renovated” 2nd floor loft at $2.975mm. The simple time adjustment permitted by the StreetEasy Index is nearly flat, as the 2% gain in the overall Manhattan residential real estate market implies a current value for the 2nd floor of just under $3.05mm.

While both the 2nd floor and the 7th floor penthouse are fairly described as gut renovated, as we know that describes the scope of demolition but not the quality of the new loft. The 2nd floor broker babble and photos don’t suggest that these two lofts are truly comparable in condition. The Market thinks they are more than $600,000 apart in value, only a small portion of which is likely due to one being 60+ feet higher than the other. Light only gets you so much additional value, even from two skylights.

The 7th floor is just in a different league as far as gut renovations are concerned.

this is creative, but what is it??

this is the wall leading to the rear BRs; what are they growing on the floor??

I’ve seen a loft with a koi pond, and lofts with green (living) walls. I don’t think I’ve ever seen a wall dedicated to ceiling to floor plant lights, and (ivy??) before. And looking at this column, and knowing it isn’t structural … I don’t like it. Not authentic. Too much effort. YMMV (For the sellers, their mileage varied, a lot.)