what do manhattan lofts and walk-up apartments have in common?

the Real Estate Industrial Complex, Manhattan Media Division, always in search of an angle

You saw that article in the holiday weekend New York Times Real Estate section, Stair Masters, about the (ahem) ‘bragging rights’ associated with living in Manhattan buildings without elevators. A nice fluffy bit for the readers still bloated from stuffing and pie. Of course it is full of sales-y BS and ‘insight’, with a smattering of (seemingly) relevant data. I will get to that critique below, but note how well these sentences work with a slight change in text:

“There is a new generation of renters out there who don’t need a doorman, and want something unique and different,” said [a sales person]. “Walk-ups [Lofts] can offer a wonderful combination of old prewar New York mixed with new design, and that can be hard to find in a cookie-cutter doorman building.”

***

In addition to the lower costs associated with walk-ups [lofts], they are appealing for their historic character. This uniqueness can sometimes translate into a premium over similar apartments in full-service buildings nearby.

One can make the same points about a niche-market preference for lofts with character, including, for example, writing a blog post on (say) September 16, 2006, loft owners open their own doors, about a loft market preference for no-doorman at a price point at which nearly every uptown “apartment” would be in a doorman building.

No need to change anything here to make the same point:

Because the building offers few amenities, requiring no salary for a doorman or upkeep for an elevator, [the developer] is able to keep the monthly common charges low.

***

“We looked at old photos, researched what the building looked like. You want to capture the charm and preserve the historic character while having people know that they are walking into a renovated building.”

***

“you hear renters say that they are looking for something with character — that character is an amenity. The staircase is a great place to find that, because it is the place where interactions with neighbors happen.”

***

“I much prefer old buildings,” said Mr. Kuszynski, 31. “I really don’t like sterile high-rises.”

***

“It is nice to have the same quality apartment as a doorman building, but not have to feel like someone is keeping tabs on you.”

***

“I keep hearing, ‘I want a boutique building, I want to see listings that don’t have a doorman,’ ” [a salesman] said. “There are a lot of beautiful properties that offer a level of privacy and intimacy you just don’t get in a big building.”

why do they do that?

Reporter Julie Satow wrote a harmless article, not full of demonstrably false stuff but oh-so-full of happy talk from real estate sales agents and developers. But seriously: does anyone think that if two 4th floor apartments were identical in every respect except that one had an elevator (and [slightly] higher expenses, that The Market would prefer the one without the elevator? Uh … no. And there is not likely to be any factual basis for asserting that.

There is a market truism that anything that reduces the size of the buyer pool for an asset type can reduce the market value of that asset type. In this case, I believe the Conventional Wisdom to be true. This applies to optimizing a huge loft as a One Bed Wonder, or any expensive but highly individualized renovation, or a loft with no light … or a walk-up. There is a market for each of these types, just not as deep a pool of buyers as for a 2,500 sq ft loft with 3 bedrooms, or a lovely but conventional build-out, or a loft with light but no view, or … a loft with elevator access. Someone will buy them, and some two may fight over them; but The Market wants what The Market wants. And the higher you go up the stairs, the fewer potential buyers are willing to make the trek. At all. This should not be controversial, which is why the premium-for-walk-up catches your eye.

Satow has three gross data points and two more specific points. Pardon me, but they don’t add up to the thesis of the article.

over the past year, the average monthly rent for luxury walk-up one-bedrooms (those priced in the top 10 percent), rose 5.7 percent, while that for one-bedrooms in full-service elevator buildings increased just 0.5 percent, according to data from Citi Habitats.

That’s a stat that establishes (if it is valid at all) that the rate of increase was higher for Top Of Market 1-bedroom rentals without elevators than for Top Of Market 1-bedroom rentals with elevators, not that walk-ups are more pricey than elevator units.

And the number of walk-ups sold over the past year has jumped nearly 64 percent, whereas the increase was 22 percent for units in full-service buildings, according to the appraisal firm Miller Samuel. Over the past year, Miller Samuel also found that the price of walk-ups has surged nearly 22 percent, versus less than 2 percent for units in full-service buildings.

Same point about the second sentence, as above. As to the first, that says something about the distribution of sales in the market, not the relative value of one kind of property over another. (Putting aside the definitional problem of whether for this purpose “full service” means any building with an elevator; it shouldn’t, but that’s a funny set of extremes to compare.) This 64% v. 22% might mean something if you could show that the walk-ups were selling and the “full service” units were not. But you’re not going to show that (and Satow didn’t try) because inventory of all sorts, if priced right, is selling.

Plus, I will bet you a quarter that the walk-up market is a relatively small part of the overall sales market, so is naturally more volatile in participation rates.

you know this: comping is hard

I can’t comment on directly on the specific comparisons Satow draws, since I don’t know the details from which to compare sales values at 650 Bergen Street and 618 Washington Avenue in Prospect Heights, or the rental values at 95 Horatio Street and 48 Bedford Street. But in the case of the rentals, even the developer make the case for a premium for ‘character’, not for stairs per se. And Satow hints that she might be cherry-picking data about the Prospect Heights sales: she uses an average of $872/ft for 2-bedrooms in one case, compared to “luxury” units in the other building “priced at the upper end of the market, some for more than $1,000 a square foot” (emphasis added) without comparing whether the first building has “luxury” finishes, without going apples-to-apples with an average price per foot in the walk-up building, without telling you that StreetEasy shows that three 2-bedroom units on the first floor at 650 Bergen Street (no need to walk-up, though there is no elevator) are in contract off of asking prices of $765/ft, $723/ft, and $709/ft, before adjusting for outdoor space.

Yes, those duplex units have some below grade space, making comping more difficult, but that only strengthens the point that the comps are not so simple, and the building Satow chose has an average 2-bedroom value of $732/ft, well below 618 Washington Avenue’s 2-bedroom average of $872/ft (before adjusting for outdoor space there, either). A cynic might look at just those data points and argue that even the ground floor units in walk-ups are penalized by The Market. That would be wrong, but how does that make you feel about Satow’s selection of data?

Here is one other way to support the Conventional Wisdom, and oppose The Satow Theory of Stair Premium: many, many (many!) small Manhattan loft buildings were converted to residential use from prior industrial or commercial use and added elevators to buildings that did not formerly have them. (I hit one in my September 13, 77 White Street loft lacks “bedrooms” because elevator is in the wrong place, in which I told you how to recognize such a building.) Elevators are a common amenity, as in perceived-by-The-Market-as-a-benefit. D’oh. That’s why some buildings that don’t have them put them in; that’s why developers of Manhattan lofts pretty much always put them in if feasible; that’s why — all other things being equal — The Market will pay a premium for an elevator over a walk-up.

The burden on someone arguing to the contrary should be on Satow them. Developers may like stairs, especially in 3 story buildings with their own very specific financial advantages that have nothing to do with elevators, but they don’t have to live there.

To recap: character can be a premium item; stairs … meh.

And: the Real Estate Section of even the Old Grey Lady is not a place in which journalism is often committed. The Real Estate Industrial Complex, Manhattan Media Division is usually just part of the Complex.