same-loft resales are data points in The Market, not The Market itself (as at 208 Fifth Avenue)

granular data and the big picture

I’ve been thinking about the quality of data, and about what data mean, in the Manhattan residential real estate market after my post about the StreetEasy Condo Index (October 5, in praise of StreetEasy, not to bury it). I am going to riff a bit on the metaphysics of data and the utility of proxies, using that Index and the specific data point of the recent sale of the “1,600 sq ft” Manhattan coop loft #5E at 208 Fifth Avenue that is in such prime NoMad as to offer direct views of Madison Square.

Let me start with the obvious observation that the utility of data depends on the purpose for which it is to be used. Thus, the StreetEasy Condo Index is a wonderful single data point if what you want is to get “a feel for how the Manhattan Condo Real Estate market performed over the past 15 years” (as StreetEasy describes its index). That’s the kind of thing that people doing macro commentary will find very useful, like the Manhattan Media Division of the Real Estate Industrial Complex. If, instead, one were a potential buyer or seller of a downtown Manhattan loft, one will want more than “a feel”; such a person will want more granular data relevant to the specific property at issue. That granular data might include a recent sale in the same building, or a past sale of the same unit.

 My view is that macro commentators can stick with the Index-level data, but they always want anecdotes. And I am always tempted to measure a macro analysis against specific data points in the downtown Manhattan loft market niche. When looking from the other direction, regarding a specific loft to be bought or sold, I will start with the best and most granular data points (the more the merrier), then use some macro analysis as a reality check. Maybe this next point is obvious to everyone but me (to whom it is not so much obvious, as subtle)….

If you want to estimate the value of a property that has not yet sold, there is no direct data point to simply plug in. Whatever data you use is a proxy for the Unknown Value, whether you start with the Big Picture and drill down, or from the most relevant granularity and step back. Indeed, even if you have the identical unit in identical condition that has just sold, that data point cannot simply be plugged in to answer “but what is this [different] one worth today?” Maybe this next point is also obvious to everyone (it is to me) ….

Every sale of a Manhattan residential property is the unique result of the negotiation between a unique seller and a unique buyer. Even assuming a perfect transparency of knowledge (in The Market and understood by both sides) the individual needs, goals and resources of the the unique parties will determine the number at which they agree. The fun thing about the downtown Manhattan loft market is that there are rarely equal commodities for sale simultaneously, so there is almost always room to argue, and to disagree. Which always introduces some level of market noise into a comp or valuation analysis.

Forgive me if this is too elementary, my dear Watsons, but sometimes I need to restate first principles. Sometimes, too, I am tempted to play with numbers ….

what should 8 years have done to this value?

Which brings me back to this single data point: that “1,600 sq ft” loft with a view of Madison Square (#5E at 208 Fifth Avenue) just sold for $1.755mm, perhaps surprising the seller a bit (it has been asking ‘only’ $1.675mm and found its contract in about 3 weeks). In a set of prior market conditions, this very same loft in the very same condition (pre some wear and tear) sold for $1.575mm in May 2005. That is an 11% increase in value from 2005 to 2013 for this same loft, at a time when the StreetEasy Condo Index went from 1,840 to 2,170, an increase of 18%. (Actually, the most recent Index value is August 2013, not September, but pretty close is pretty close for this purpose.) By this measure, loft #5E underperformed the overall Manhattan condo market over these 8 years.

There’s another relevant data point: an instance of market inactivity for loft #5E. The loft was offered for sale for 5 months in late 2010 at $1.585mm and $1.55mm yet failed to sell (it was even offered as low as $1.499mm for a brief period). Assuming that the seller did not get a full price offer at that time, that means that the 2010 market thought the loft was worth less in 2010 than in 2005. (Perhaps not much less [at least 1.6%], but still.) In contrast to this worse-than-flat result, the StreetEasy Condo Index went from 1,840 to 1,890, a (trivial?) increase of 2.7% in this same period. That’s a spread within range of market noise, but since it did not sell in 2010 we don’t have a known value for #5E then. Again, loft #5E underperformed the overall Manhattan condo market, this time over 3 years.

Let’s throw one more number on the board. Loft #2E sold in June 2012 for $1.7mm with some significant differences compared to three floors up. The second floor is a deficit for some buyers, but comes with higher ceilings; at 14 feet, this permits a mezzanine ‘bedroom’ above the kitchen, instead of the  ‘sleep area’ taking up exclusive space on the #5E footprint. In addition, the broker babble for #2E suggests a higher level of finishes than in #5E (“meticulously renovated, architect-designed home …. Open chef’s kitchen” v. “fully equipped kitchen … custom lighting systems and surround sound”). A rational market would value #2E over #5E in a head to head competition; the June 2012 market valued #2E at $1.7mm while the September 2013 market valued #5E at $1.755mm. The StreetEasy Condo Index had June 2012 at 1,950, August 2013 (the most recent month available) at 2,170, a spread of 11%.

Before accounting for difference in floor level, ceiling height, usable space, and condition, the StreetEasy Condo Index suggests that #2E in August 2013 would have sold around $1.89mm, probably a rational spread over #5E at $1.755mm, given the greater utility in the #2E mezzanine and the better condition. Sweet.

Getting out of the minutia to head for the exit, using both the StreetEasy Condo Index and the same-loft-different-year data and the same building data proves harmonious here, most especially at using the latest same-building sale. Overall, more harmonious than I first thought on looking at the 2005 #5E sales price. D’oh.

Note to self … pay more attention to Urban Digs.