measuring arm's length / not a real “sale” at 125 East 12 Street

this is hard work, fraught
Having gone on record on Friday (sign of a thaw? 147 West 22 Street closes up 9% over 2006, 263 Ninth does not) with a commitment to bringing th Manhattan Loft Guy Master List of Loft Closings up to date, it is timely to consider one of the difficulties in interpreting a fact, such as that I discovered this week that a deed was filed dated June 25, 2009 reflecting that title in the Manhattan loft #1E at 125 East 12 Street (the Zachary) was transferred and that $800,000 changed hands in the process.

I was about to add this "sale" to the Master List based on my initial review. I was a little concerned that Streeteasy noted there is no listing associated with this transaction. Then I looked at prior history and thought I do not think this loft lost 60% of its value in four-and-one-half years (the prior deed was dated June 27, 2005; price was $1.945mm). So I looked at the names on the two deeds, and found that two people with distinctive names (to me) acquired the loft in 2005 and that in June 2009 one of them transferred an interest to the other.

In other words, it almost certainly is an intra-family transaction as opposed to an arm’s length transaction between a willing buyer and a wiling seller, neither of whom is under undue duress. Maybe it was part of a divorce. Maybe it was one of a series of property dispositions or estate planning, or it was a gift. Regardless, in still other words, I will bet you a dollar that it is not a valid comp for any purpose. (A dollar is a big bet for me, and is more than I will wager on the Super Bowl, or have plunked down in any of my last four trips to Las Vegas. But I digress. Again.)

Sherlock Holmes need not apply, this time
This one was easy to identify, but I can’t swear that I have always taken extra steps when dealing with a deed and the note there is no listing associated with this transaction. Had the price history been a little closer, within the possible range if actual values (pretty broad, in buildings I am not familiar with), I might not have checked the names on the deeds. Sometimes the names on the deeds are not as easy to figure; sometimes there are Trusts, LLCs, or other entities with different names that mask related-party transactions.

I assume The Miller and the other professionals who create market reports have a refined process for vetting such things. Manhattan Loft Guy flies by the seat-of-the-pants method here. You probably do, too, if you look at ACRIS or StreetEasy. Watch those pants.

To use this example, the transfer of #1E at 125 East 12 Street might have not featured names that were easy to track, and/or might have been at a (still-artificial) price of $1.5mm, in which case somebody out there might have used the sale as a comp. That somebody would have made a mistake.

How do those professionals filter for related party transactions, I wonder….

© Sandy Mattingly 2010