veddy interesting … but few details
No surprise that Manhattan Loft Guy is not the only guy interested in Manhattan real estate recent paired sales. My dump of 27 Manhattan lofts that sold since November 1 and that previously sold in 2007 is in my updated March 5 post. Property Shark data in the same vein is reported in The Real Deal in Can’t win for losing / How much pain are those who bought from ’05 to ’08 feeling when they sell today? from the April 1 edition.
Although there is less detail reported, the Shark’s Manhattan trend line is similar to my 2007 much smaller loft selection: roughly half of 761 paired resales recently sold above their last resale (389) and roughly half below (372).
top line numbers
TRD either didn’t ask Property Shark for details, or didn’t report more details. Darn!
Their numbers use "recent" resales in a slightly different period than I used, October through January compared to my November through April (I will stop updating when all April sales have been filed). TRD also uses a long "before" period. My first list is only 2007, the next one will be 2006; the Property Shark sales are from 2005 through 2008.
The longer period gives much more data, but does not necessarily mean the conclusions to be drawn are stronger; given the trajectory of gain in the overall Manhattan real estate market, 2007 sales were at notably higher price levels than 2005 sales. But the idea of a larger data set is a good one, which suggests that after I do that 2006 set I should do one for 2005 and one for 2008. I am pretty sure the results will be quite different, depending on which year is the base year.
profit or loss is a seller’s perspective
The Real Deal article uses language from the perspective of the seller, while I am more interested in the perspective of The Market. Consistent with the editorial approach from the title of the TRD article, they look at "profits" or "losses" from the recent sale of a Manhattan apartment purchased in 2005 to 2008, but their measure is too crude if they really want to measure (as they say) pain.
Look what happens to a "profit or loss" if you take into account closing costs.
The Manhattan loft #10Z at 252 Seventh Avenue (the storied Chelsea Mercantile) is on my list because it sold on February 11, 2010 and March 13, 2007, at a positive 2.1% change. Taking into account only the Big Sell-Side Closing Costs, that February seller paid (roughly) 6% in brokerage fees and 1.825% in state and city transfer taxes. For this sale at $970,000, the February seller netted just under $900k. This sale is not in the Property Shark data set because it had not closed by January, but The Real Deal would count this paired resale as a "profit", even though the February seller who netted under $900k paid $950k (plus some much smaller closing costs) in March 2007.
By any real measure from an individual perspective that is a "loss", resulting in some "pain".
The situation is more dramatic for new developments purchased in the "before" era. Take the Manhattan loft #2D at 22 Mercer Street, on my list as a positive price change of 3.39%. I am comfortable with that description from a market perspective, as The Market valued this as a new development $2.95mm. (Although I concede that people should take closing costs into account when they buy, I am not convinced that they do, at least not to the right degree.) But from a P&L perspective this March 4, 2010 seller got hammered. Really hammered.
[UPDATE 4.19: I’ve updated these pro forma calculations, as it has been gnawing at me all week that I omitted some important buy-side Big Ticket closing costs for a condo (1) mortgage recording tax 1.925% and (2) title insurance, from 0.5% to 0.8%; I am using the higher figure for the 22 Mercer sale]
My rough calculation of Big Ticket closing costs is:
from January 9, 2007 purchase at $2,950,000, add
- "Mansion Tax" of 1% = $29,500
- New York State and New York City transfer taxes of 1.825% (I assume ITAL this buyer did not get a sponsor concession in the May 2006 contract) = $53,837
- mortgage recording tax 1.925% = $56,787
- title insurance (assume 0.8%) = $23,600
from the March 4, 2010 sale at $3,050,000,
add take away
- brokerage commission (assume) 6% = $183,000
- New York State and New York City transfer taxes of 1.825% = $55,662
Net proceeds (price received + Big Costs = $2,811,338
Not much "profit" here, eh? That’s why I use "percent change".
From a macro perspective, the change in Market Value of this loft from 2007 to 2010 was (positive) 3.39%. From the perspective of this seller, taking into account only the Big Picture costs, he received 7.32% less than he paid to buy. There’s some pain here, too.
another MLG justification
I believe it is fair to ignore closing costs when looking at changes in market values. As I said, one reason is that I believe that The Market actually discounts closing costs by not really ITAL taking them into account (that’s my opinion folks, from watching buyers behave). In addition, since everyone pays closing costs, they more or less factor out when looking at paired transactions. Although this is less true for pairs purchased as new development where the buyer paid the transfer taxes, it is still mostly true, and it is impossible to actually track closing costs, especially in a period in which developers made a variety of different kinds of concessions not reflected in a purchase price to close deals.
Bottom line: I think that using the recorded sale price is a good enough proxy for the actual financial transaction, and that it is the only useful data that we have for all sales. With all the other data problems with Manhattan real estate, this is one I am willing to live with more comfortably than others. And I am willing to cut The Real Deal and Property Shark some slack for not being as detailed as I would like. This data set is so much better than nothing.
April may be thank Real Deal month
This is my second April post in which it is appropriate to offer props to The Real Deal. (The first was April 10, the case of the curious "typo" / 41 Rushmore buyers get to rescind.) I don’t know if this is a trend or a coincidence.
© Sandy Mattingly 2010