so many Manhattan lofts are ‘outside the box’ for mortgage purposes

… though the New York Times talked more about farmland than lofts, alas

There will be a very valuable kernel of truth discussed in Sunday’s New York Times piece, Buying Outside the Box (yes, I can see into the future, so long as it is on the intertoobz ;-), but The Old Grey Lady remains too frustratingly aloof to the actual real estate environment in, you know, Manhattan to mention the obvious application to the subject near and dear to my heart. In making the case that

[h]omes deemed unusual may be desirable for some to own, but even borrowers with excellent credit may have trouble obtaining sufficient financing to buy them [,]

Lisa Prevost of the Times referenced (a) location issues, (b) usage issues (multi-family v. single family), (c) size (apartments too small, or on lots too large), and (d) ‘green’ homes. As she said,

The problem is that unusual homes can be difficult to value, because appraisers rely on the sales of comparable properties to come up with a price. In the absence of strong “comps,” mortgage underwriters may not be satisfied that an appraised value is well supported.

Do you see what is not on the list? If not, fill in the blanks: ______ ____ Guy.

in other words, comping is hard, often very hard for Manhattan lofts

Regular Manhattan Loft Guy readers know that I write “comping is hard” or its equivalent often when trying to backwards rationalize a specific sale of a specific Manhattan loft. To some, that may feel like a crutch; to me, it is a way to underline that The Market often has trouble rationalizing loft sales. Indeed, that difficulty is a critical reason it so much darn fun to follow the loft niche in the Manhattan residential real estate market, and so frustrating for buyers or sellers who get caught up in an appraisal problem because a loft is unique (or, as it is sometimes babbled by brokers, “truly unique”, or “one of a kind”, or “very unique”).

Again, regular readers know that I use “cookie cutter” as an epithet. Cookie cutter describes a great many Manhattan “apartments” and (I assume) suburban tract homes. Certainly, there are sellers who make appraisers’ lives difficult to doing unusual things to their homes, but truly classic lofts are inherently unusual. And different from each other, even in the same building.

You can have three lofts in the same building that differ greatly in condition (from untouched since 1980 conversion, to 10-year old renovation, to current state-of-the-art condition), in number of bedrooms and baths (from 4 + 4 all the way down to 1 + 1), to views (from brick walls 10 feet from each back window to open views from all exposures, depending on floor height and inter-building angles), to things as basic as ceiling height (often, the 2nd floor is tallest). With small buildings, you may have no recent history of neighbors who reset the local market by selling.

The larger the loft, the more likely that critical adjustments have to be made; especially in comparison with, say, an Upper East Side 2-bedroom property, which should have many comps of the same approximate size, whether a 2-bedroom of 800 sq ft, 1,200 sq ft, or a rambling (for a 2-bedroom on the Upper East Side) 1,600 sq ft. You’ve seen me talk about 2-bedroom loft ranging from around 1,000 sq ft to more than 3,000 sq ft. And let’s not talk (much, now) about the appraisal problems presented by a One Bed Wonder (quick reminder: a loft optimized for people sleeping in a single bedroom, often one is expensively renovated for that optimization, that would be ‘ruined’ if renovated to increase the bedroom count).

appraisers do the best they can, I suppose (and hope)

I have to wonder if appraisers really understand the loft niche in Manhattan, just as I have to wonder if agents and civilians do. Let me give you a concrete example, with some details fudged to protect the innocent, naive, and guilty alike.

A client recently shared a mortgage appraisal with me. Without being too coy (just coy enough), the Subject Property is 3,000+ feet set up with 2 bedrooms and 3 baths, in a small loft building in a classic loft neighborhood, with no amenities other than basement storage, conspicuously low monthly expenses, some light but little view, with very high ceilings, in a classic but relatively wide Long-and-Narrow footprint, and in condition that could be mistaken for “move-in” but that the entire Manhattan loft buyer pool treated as needing a gut renovation (it was renovated 10+ years ago, to rather … idiosyncratic tastes). The appraiser identified six comparable sales, only two of which would have I discussed with my buyer clients if those six lofts had actually been offered for sale when they found the Subject Property.

In other words, given the buyers’ budget and size requirements, I would not even have sent a link to four of the supposed “comps”. Two were in high-amenity buildings newly converted in the last ten years, one was in a state-of-the-art-for-its-era conversion of 15 years ago, four were in buildings that ranged from having 4 times the number of units to 12 times the number of units as the Subject Property. Every one had been nicely renovated much more recently (and more nicely) than the Subject Property. None were as large as the Subject Property, with 4 being less than 75% of the size (one of which was about 60% the square footage). Oh … and none sold in the 12 months before the appraisal.

None had the ceiling height, volume, or the classic loft elements that made the Subject Property attractive to my clients. In other words, none were quite as loft-y. I am not complaining: the appraisal came in at the contract price (go figure!) even though both the listing agent and I believe the contract was below-market.

There were lofts that have sold within that year, in the not-too-distant neighborhood, of approximately the same size and condition, that my buyer clients considered. They sold at higher prices than the Subject Property, usually without even having to adjust for timing. They would likely have needed less than the adjustments on the 6 “comps” in the appraisal, which ranged from 12% to 23%, gross.

I bet you fifty cents that comping would have been much easier for an “apartment” on either of the Uppers, with more recent sales, or units of more similar size, condition, and character. Most “apartments” are ‘in the box’. Lofts, however, is lofts. And outside any box.

Yes, reader: comping is hard.