setting a record in NoLIta, as 354 Broome Street loft with single window barely breaks $/ft record

by Sandy MattinglyPosted on Posted in loft neighborhoods NoLIta — No Comments ↓

Manhattan loft volume comes at a price at the (other) Ice House

When we were last at 354 Broome Street, it was to note the setting of a new building record (on a price per foot basis), in my July 23, 2012, double bold-faced loft sale at 354 Broome Street: a harbinger or just a Bright Shiny Object?, not to snark about the ability of the New York Post to find a way to link to Victoria’s Secret. (That was just a bonus, I swear.) Two years later, and that record has just been broken, and by ‘just’ I mean fairly recently sold but very recently recorded, and broken only by a little. The Manhattan loft #4B at 354 Broome Street can only be at “1,744 sq ft” if you count the mezzanine at full value; at that size, the July 9 deed at $2.2mm comes to $1,261/ft. In contrast, that sale of #3H was only at $1,232/ft. In June 2012.

In light of that comp, no wonder the #4B seller tried higher than the $1,261/ft she finally got:

Jan 29, 2013  new to market $2.5mm
Mar 8 off market
Oct 15 new firm $2.799mm
Nov 18 off market
Dec 18 new firm $2.599mm
Jan 5, 2014 $2.2mm
Jan 8 $2.3mm
May 17 contract
July 9 sold $2.2mm

Couple of notes … I bet that January 5 price was either a typo or miscommunication between seller and agent, in either case corrected within 3 days; and those asking prices started at $1,433/ft, hit a high of $1,605/ft, and finally settled at $1,319/ft for the last 4 months that it took to strike a deal, each of which would have been a more significant record.

a very white boxy loft that is not a ‘white box’

I very much doubt that the seller lived in the loft the way it is pictured. Either the loft was empty but staged, or the seller is The Cleanest Woman In The World. Did you notice that there’s nothing on the shelves in the 6th photo? And nothing on the walls in any photo? And that the bit of greenery-in-a-vase is shown in the kitchen in the 2nd photo but missing from that same counter in the 3rd and 4th? And doesn’t it look as though the grey couch with 3 pillows that is in front of the window in the main and 2nd photos has been moved to the left wall in the 4th? Finally, who lives in a photo shoot like this?

White ceiling, white walls, white oak floors, even a white ceiling fan … apart from the splash of color (aquamarine?) on the lower part of two columns, this is white on white on white. In theory, some people live this way. I just doubt it. You won’t see a whiter loft. (Thanks for the photo, Halstead!)

But when real estate pros talk about ‘white boxes’ they mean something different: a loft that has been built out with the minimum requirements to satisfy the building code, with the expectation that the buyer will improve the loft by building it out with, among other things, new bathrooms and kitchen. So developers put as little money as possible into the loft (including slapping on the cheapest white paint they can find) in order to sell a legally ‘finished’ unit. (Ten Manhattan Loft Guy posts from the archives tagged “white box” can be found here.)

which is the outlier sale in the building?

In that July 23, 2012 post I noted that the #3H sale was not just a building record on $/ft but at a significant premium to past sales in the building:

The last three sales in the building were at substantially lower values than #3H at $1,232/ft. The “[d]ramatic and beautifully designed” #4C sold at $903/ft in September 2011; the “dramatic” loft #6B with “generous chef’s kitchen” sold for $935/ft in May 2011; and the (yes, again) “dramatic” loft #5E  with “beautifully renovated and minimal kitchen” (not sure what that means) sold for $911/ft in December 2010. With one exception, you have to go to just after The Peak to see a 4-figure price per foot, when the loft #5G (“Triple Mint Architectural Renovation”) sold at $1,088/ft.

That #3H sale at the time struck me as possible harbinger (“not so much an outlier but the sign of a market in transition, and that the trend line will (eventually) show that The Market began to pick up in mid 2012“). Of course, it turned out that the 2012 market was then in upward transition, but it is hard to reconcile #3H at $1,232/ft then and #4B at $1,261/ft now based on the performance of the overall Manhattan residential real estate market. The building history makes more sense if you take #3H out of this sequence:

Dec 2010 #5E $911/ft
May 2011 #6B $935/ft
Sept 2011 #4C $903/ft
June 2012 #3H $1,231/ft
July 2014 #4B $1,261/ft

Harbinger in June 2012 or not, the #3H sale makes no sense is difficult to reconcile with other building data.

With apologies if I offended The Cleanest Woman In The World. That.Is. All.

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

by Sandy MattinglyPosted on Posted in manhattan real estate business — No Comments ↓

… 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.

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wish me (& my kidney) a happy anniversary, please

by Sandy MattinglyPosted on Posted in caution no real estate content — No Comments ↓

it’s the polite thing to do

Five years ago right about now, two families in varying states of anxiety hung out up at Columbia Presbyterian, with one member of each being prepped for surgery. A few too many hours later, word came to the assembly that the organ formerly known as My Left Kidney was Her Brand Spanking New Kidney, and all began to be right with the Smelin world, once more.

Five years is a significant milestone in many medical contexts, not least organ donations, so please give it up today for the organ formerly known as My Left Kidney … er … Her [no longer] Brand Spanking [but still beautiful] New Kidney, and for Susan’s continuing good health. When I say that donating a kidney was the coolest thing I’ve ever done, I mean that if that datum is not the lede for my obituary in 2054 or so it will be because there are truly extraordinary and unexpected things ahead of me.

Long (long!) time readers of Manhattan Loft Guy know the story, but indulge me for some refreshment.

My anticipatory post on that long ago Friday before Labor Day (back when Labor Day was celebrated where it belonged on the calendar) was  asking for prayers from those who pray.

I provided the backstory in my return blog post after a long and unauthorized hiatus from blogging, in my January 20, 2010, adventures in nephrology / about that kidney donation…., with a link to an interview we did to fill in that backstory that appeared on page 8 (of 10) of the January 2010 edition of FieldNotes, from the Ethical Culture Fieldston School (sorry for all the scrolling required).

The rest (up to now) is day to day life for both of us — a prospect about which Susan used to have some doubts — and celebration, such as the lovely Fifth Anniversary dinner we shared last night at Craft. (Every thing they put on the table was terrific, but try the pork porterhouse, served a lovely pink.) We forgot to take a picture of us at the table, alas, but just imagine a large table, full of empty plates and satisfied smiles.

I will close the way I closed that January 20, 2010 post, and several since then:

The New York Donor Network website is http://donatelifeny.org/, where you can get information about donating organs after you don’t need them. There’s a form you can fill out, print and mail that enrolls you in the donor program, which you can access here. The main site has many, many links if you want further information about organ transplants.

Do. It. Now.

Seriously: Do. it. Now.

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crappy layout does not keep 131 Perry Street loft from $1,704/ft sale, 30% above Peak

by Sandy MattinglyPosted on Posted in Loft neighborhoods - West Village — No Comments ↓

for serious Manhattan loft brick fans, apparently

Exposed brick tends to be one of those love-it-or-hate-it elements of Manhattan lofts, with a great deal of passion expressed by both camps. I suspect the main listing photo for the “1,555 sq ft” Manhattan loft #2A at 131 Perry Street in the West Village did what good marketing is supposed to do: separate (and attract!) the seriously interested buyers from people who would never buy the loft, no matter what.

There are probably people out there who looked at this and thought “I’d love to paint that ceiling white”, but that’s a lot of work and treats a feature as a bug. As the headline suggests, the layout is enough of a bug to turn off a lot of buyers to the loft, so considering the ceiling feature a bug would shrink the buyer pool even further.

The footprint is square-ish, with opposite diagonal corners inset, but suffers from a single (true) exposure and from inconvenient plumbing placement. The only real windows are over Perry Street (those “newly replaced casement style windows” that seem to fit within the former “[f]our massive teak, French window [frames]”) so only the living room and master bedroom get windows. And the “master” is cater-corner to the bathrooms, rather than en suite, as a proper master would be.

Those bathrooms are as oddly spaced as any I have seen recently, presumably by necessity. The plumbing is arrayed in a squat “T” at the back of the loft, with one bath and the kitchen along the rear wall and a washer-dryer and second bathroom jutting out to the south. Necessity must truly be a mother here, as the result is a “room” (not a bedroom) barely over 7 feet in width, with the larger of the two baths en suite. That skinny second bath is squeezed between that skinny “room”, the washer-dryer, a column, and the dining area. It’s not pictured, but seems to be a full bath so that shower feature must share space with the sink and commode, as in Euro-baths. The floor plan makes this more clear than my words:

More weird, still, to use that bath you have too take a big step up, into that glass doorway that appears to float in listing pic #5. I don’t imagine many folks use that bath when the dining room table is in use, or that the folks who sleep in the “master” use this one much.

Other floor plan foibles are in the northeast corner: the second “bedroom” is well short of legal width, at 6’9″, and seems to be on a light well or courtyard of some kind. (Note the brick ‘views’ that peak through listing pic #3.) That bedroom could be widened, of course, but at the cost of shrinking the “dressing closet” for the master.

The floor plan is clearly optimized for however many people sleep in the master. The tiny “bedroom” can fit even a teenager, of course, but would seem ideal as a nursery, if not an office or guest room. (Did Mr. Murphy install anything? There’s no bragging about that.) It’s not illegal for anyone to sleep in that other tiny “room” (with the en suite bath), but that doesn’t seem to be the point of the layout. As I said, a crappy layout, presumably dictated by a series of necessities. hardly ideal for the 2-bedrom buyer market, and less than that for the 3-bedroom buyer pool.

All that said, the chronology and dollars suggest the buyer pool was robust: to market on April 14, in contract by May 15; asking $2.795mm and getting $2.65mm, which might feel like a non-trivial discount, but the July 18 sale was a premium of nearly 30% over the last time the loft sold (May 2010 at $2.037mm) and the time before that (remember The Peak? $2.08mm in April 2008). That’s what I call robust.

same, same, but many more nickels and dimes

That 2010 sale seems to have been private (not to mention, at a tiny loss) but the April 2008 sale was a public affair. StreetEasy’s only got one of those listing photos (and a blurry one at that) but our system has a set of six. The pix and that 2008 floor plan reveal that there have been no significant changes to the loft from 2008 to now. As enthusiastic as the recent broker babbling got (more on that below), the 2008 babble included this bit of bragging: “featured in three architectural publications”. That babbling was also more specific than the latest version:

The sleek kitchen consists of stainless steel counter-tops, Gaggenau stove-top and oven, Subzero refrigerator, and Miele dishwasher. Bathroom sinks and fixtures include Duravit, Kohler and Dornbracht brands.

Details like the dining room light fixtures are the same, 2008 and 2013. The ceiling, walls, and floor appear to be identical, with the only visible change evident in comparing the photos is subtle in the photos but highlighted in the broker babble. As noted above, what had been “[f]our massive teak, French windows” are now “newly replaced casement style windows”.

Yet: $2.08mm in April 2008 and $2.65mm in July 2014. Robust!

not a fan of the babble, but Your Mileage May Vary

I was distracted by the word salad of the broker babble, and it took me a while to realize that the ceiling is described as not brick, but tile. I’ll take the agent’s word for it, but I will stick to my introductory comment about the listing photos appealing to brick lovers. The tile may be more interesting than brick (the colors are certainly varied, and the rectangles are larger than standard brick), but I suspect most people will ‘read’ the photo as brick, even if the ceiling is more clearly tile In Real Life. Regardless, barrel vaults are cool (not to mention, authentic), and halfway between common and rare in Manhattan lofts.

There are enough peculiar locutions in the broker babble to be distracting. To me. Civilians who don’t read these things for a living may have a more gentle response, but these jar:

  • … inherently rich …
  • … further enhanced with striking lines yielding an authentic, organic one of a kind residence …
  • Hallmarked by a tile Barrel-vaulted ceiling …
  • … the large open living area adjoins …

I am not even sure what “inherently rich” means.; that second one is a highway pile-up; ceilings can “hallmark”??; and I suppose “adjoins” is a verb, but it seems to have sprung from a thesaurus rather than a Broker Babble Bible that focuses on communication. End of rant….

One more time: this marketing campaign worked. Contract within 5 weeks, 30% higher than that achieved near The Calendar Quarter Formerly Known As The Peak. Can’t snark about that. (Sigh.)

 

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81 White Street loft takes a year to sell as the very not-prime Tribeca loft it is

by Sandy MattinglyPosted on Posted in loft neighborhoods tribeca — No Comments ↓

comping can be very hard in odd micro-nabes like way northeast Tribeca

The Manhattan lofts that sell over ask and in mere days hog all the headlines. “Refreshing” is certainly not the word the seller or sales team might associate with the “1,991 sq ft” Manhattan loft #4E at 81 White Street, but to a market observer that modifier is tempting. I gave away the punchline in the headline, but here’s the detail:

July 17, 2013 new to market $3.1mm
Sept 11 $2.95mm
Oct 11 $2.75mm
Dec 6 $2.7mm
June 7, 2014 contract
Aug 7 sold $2,422,681

“Painful” is probably the word the seller would use to describe a marketing campaign that took nearly 11 months to get a contract and nearly 13 months to take the money and run. (Or, slink away.) You don’t often see such a funny number (nary a zero to be found) in a sale so much below ask. (It is not unheard of to have a bidding war that ends below ask, but this history doesn’t suggest one.) Imagine how difficult that last round of negotiation must have been … fighting over every last dollar, with no reasonable possibility that $…,681 is the result of splitting-the-difference.

The loft has a classic Long-and-Narrow footprint, with windows only front and back, plumbing on both sides in the middle, and barely wide enough at 22’6″ for the classic split of two bedrooms on the back wall. The loft has enough classic loft elements to be babbled as “classic”, including lovely arched windows and exposed brick up front, and the volume from allocating more than 60% of the footprint to open living room into dining room into kitchen (“58 foot great room”!) before you open that colorful door to go back to the bedrooms and bathrooms. Not so many classic loft elements to truly be a classic loft (flat ceiling that is not so high, no columns or beams, no exposed mechanicals other than track lighting) but Your Mileage May Vary.

The babbling included top finishes in the kitchen (was it mere oversight not to include the proper name associated with the “five-burner cook top with commercial grade output”?, given the sequence of proper proper names in that classically run-on sentence) and bathrooms (the charm of “triple-thick glass tiles” escapes me, but YMMV), as well as the functionality of central air.

You saw how long it took to do the deal at $1,217/ft. That’s $1,217/ft for a Tribeca condo that was a new development in 2005. A condo loft with typically lovely finishes that was purchased by the recent seller for $1,893,945 on August 17, 2005. More pain for the seller, alas: I am pretty sure that gain (before expenses, of course) of 28% compares rather unfavorably to the StreetEasy Manhattan Condo Index over that same period (but the Index is curiously unavailable right now; will check back later).

As noted in my sub-head, the disconnect between seller’s expectation of market value and The Market’s value is likely due, in part, to the difficulties in doing a comps analysis in this extreme corner of Tribeca, a corner that simply does not comp like prime Tribeca. As regular readers know, “comping is hard”, in this case due to the micro-nabe and a paucity of building data.

no comparable sales in the building since The (old) Peak

There are only 11 units in the condo (created in 2004 by the combination and conversion of adjoining buildings, hence the “E” and “W” designations) and no useful history for estimating current values. Aside from a related-party transfer of #4W in 2010, only the two ground-floor-plus-below units have sold since the first quarter of 2008. Neither the #1W sale two months before #4E was brought to market nor the #1E sale way back in July 2008 directly supports an aggressive value for #4E, but there’s a natural temptation to alibi those very low $/ft sales as due to the ground-floor-plus-below set-up, with little light and that sidewalk level front set of windows. There’s an art to adjusting the sales history of huge spaces like those, one that I won’t attempt, simply noting that you could argue all sorts of things here.

There was a nearby pretty strong hint that The Market would not accept loft #4E at the prices asked, as they were being asked. Loft #2E had trouble selling from $2.98mm to $2.8mm from May into September 2013 and then again at $2.695mm and $2.75mm in March and April this year. That loft didn’t hit its clearing price before coming off the market (again) 5 months ago, so it shouldn’t have shocked an astute observer to see that #4E would need a discount from its 6-month asking price of $2.7mm to clear.

(The #4E seller did not have the benefit of knowing the price of the neighbor who just went into contract, but that buyer and that seller had the benefit of #4E’s closed sale; it will be interesting to see where that one closes in a month or two.)

a funky little corner of Tribeca, indeed

If you’ve ever walked this block, you know it feels more like the courthouse area than the greater Nobu area. Not at all charming, in the conventional sense at least. Bordered by the courts to the east, and hard by the moats of Canal Street (north) Broadway (west). And dark. So normal “Tribeca” pricing shouldn’t apply, and clearly doesn’t.

The last time Manhattan Loft Guy readers were taken to this block, my September 13, 2013, 77 White Street loft lacks “bedrooms” because elevator is in the wrong place, touched on a nearby sale that was relevant to #4E. That featured loft closed at (only) $1,444/ft and had some positive features (“a quality renovation, classic elements such as high ceilings, beams, columns and bricks (a ton of bricks, it seems), and windows”) that are arguably more positive than their equivalents in loft #4E. One feature in that Mudd Club loft next door is much more positive than its equivalent at 81 White Street: a “sun drenched West” exposure because of the set back on the adjoining building and what I termed a “very cool view straight up Cortlandt Alley” from north-facing windows on the west edge of that loft.

If I had been asked at the time, I would have predicted that #4E would under-perform that loft at 77 White Street. The #4E buyer almost certainly beat up the seller with that nearby sale. Indeed, the fact that the #4E seller dropped the price to below $1,444/ft the month after my 77 White Street post is a concession that these two lofts were not perfect comps for each other.

To recap…. Next time someone tells you that everything offered for sale in Manhattan is flying off the shelf, point to #4E and its year-long odyssey. (And #2E, and its unsuccessful foray.) And next time someone says you can’t buy a well-dressed Tribeca condo under $1,300/ft point them to this dark corner of the neighborhood. You are not going to win any bar bets dropping these data points, but you can offer some sober perspective, a worthy public service by my lights.

You’re welcome.

 

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very not-private private terrace in Tribeca loft is surprisingly valuable

by Sandy MattinglyPosted on Posted in loft neighborhoods tribeca — No Comments ↓

when Art meets Science in valuing Manhattan residential loft space, Art wins (a lot)

Unless you are brand new to Manhattan Loft Guy, you know that all roads through discussions of the value of terraces, roof decks and balconies of Manhattan lofts lead through The Miller. Specifically, his rubric that the starting point for calculations is that outdoor space is generally worth about 25% to 50% of indoor space depending, always depending, etc, etc…. So my assumption on noting that the “2,257 sq ft” Manhattan loft #2F at 73 Worth Street on a very busy edge of Tribeca just sold for $3.35mm ($1,484/ft, unadjusted) is that this particular terrace would be at the low end of the valuation range. After all, the floor plan shows that the “230 sq ft” terrace at the back of the loft is accessible only from the second bedroom and this photo tells you that this is among the least private of private outdoor spaces you are going to see:

For crying out loud, if the baby’s sleeping in the second bedroom, guests are going to have to tip-toe through the room to get on and off the terrace, food and drink must be carried that long way from the kitchen to the terrace, any sound that you make on the terrace is going to reverberate between the towering walls that make up this canyon, and anyone curious about your guests or the quality of your entertaining will look down on your terrace to critique you. Oh, and the terrace likely adds no view and no light beyond the little of each available from the interior of the loft. (For an even better sense of what an urban canyon this terrace bottoms out in, click the View On Google button on the StreetEasy listing page; you may have to zoom a bit for the full effect, but you’ll see that the terrace is, in fact, surrounded by taller buildings even on the side behind the photographer. Can you say echo, echo, echo …?) In sum, the (so-called) Science of Manhattan real estate valuation as described by Professor Miller (holder of an endowed chair in the Real Estate Industrial Complex, Manhattan Residential Real Estate Division) requires that this terrace in this loft fall at the lower end of any normal range.

You can see where this is going, right?

truth is stranger than Science

As The Miller tells us, we start with trying to comp the interior space in the building, in order to isolate the value of any private outdoor space. The best comp happens to be the “2,565 sq ft” loft #2B that sold for $3.6mm ($1,403/ft) in March rather than the more recent “1,859 sq ft” loft #5D that sold in May at $2.8mm ($1,506/ft, unadjusted) because the StreetEasy Manhattan Condo Index shows us the overall Manhattan residential real estate market was essentially flat over this entire period (we noted that on Monday), loft #5D would need a slight adjustment for having its own small outdoor space, and #2B is much more like #2F because the second floor has much higher ceilings. (Gimme a break as we ignore the fact that #2B has much better light and an actual view, compared to #2F, as we are staying in Art-not-Science mode.) The $1,403/ft #2B comp implies that the interior of loft #2F was worth about $3.17mm. That, in turn, implies that someone just paid $180,000 for the “230 sq ft” terrace. On the edge of your seat yet?? That comes to $783/ft, or 56% of the value of in the interior. For a terrace that lacks a single plus-factor. (About that break you gave me: if we make a downward adjustment for the #2F value because #2B has that much better light and much better view, the #2F terrace becomes even more valuable.)

Damn.

Did I mention that comping is hard? Or that outdoor space is something that (some) buyers will “over-pay” for ??

one final bit of Manhattan loft riffing before the holiday weekend

Our baseline for valuing the interior space of this 2007 era residential condo loft conversion in Tribeca was $1,403/ft, as above. That compares to the coop loft in the Greater New School University section of Greenwich Village that I hit yesterday that sold for $1,394/ft, also lacking a view and light. Of course, that ain’t right. No one would (should!) argue that Fifth Avenue at 13th Street is a more prime Manhattan loft micro-nabe than Worth Street and Broadway (neither is prime in its larger neighborhood), and everyone (everyone!) must acknowledge that condos carry a premium over coops.

Science takes another shovel to the head….

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74 Fifth Avenue loft celebrates new plumbing rooms by selling 34% over 2007

by Sandy MattinglyPosted on Posted in loft neighborhoods village — No Comments ↓

this Flatiron loft still has crappy light, no views

This is a sequence that drives appraisers (and other data-driven Manhattan residential real estate folk) crazy: the “1,900 sq ft” Manhattan loft #4B at 74 Fifth Avenue in central Greenwich Village just sold for $2.65mm by owners who had paid $1.975mm in September 2007 (just one calendar quarter short of the bygone era we used to call The Peak). The loft Then had essentially the same floor plan as now, but the angst is driven by changes of uncertain scale and scope, likely making it very hard to comp the loft for the August 7 sale and especially hard to use this pair of sales in a comps analysis. (For example, the StreetEasy Manhattan Condo Index methodology says that it screens out outlier pairs; compared to this 34% gain from September 2007 to now, the Index change was only 7.3%.) If we knew exactly what upgrades there were from 2007 to now we’d have a better idea of what comp adjustments to make, but we don’t, so we don’t. Drat.

Loft #4B has a floor plan that is more efficient than impressive, with the major defect ameliorated by what is (nearby) outside the windows. Check first that floor plan:

Do you see the layout problem? There are only two windows in the public space, a space that takes up about half the “1,900 sq ft”.   In many cases, that would mean that the bedrooms are stealing light from the living area. The good news/ bad news is that this problem is trivial in this space, as none of the windows bring much light, making this a great loft for nocturnal types who sleep during the day.

Check out how close the bricks visible in the two living room windows are in the main siting photo:

(As always, window treatments pulled halfway down are a big hint that there ain’t much to see.) The room with the best light is that bedroom in the northwest corner, with two windows north and one west. But there’s nearby brick in each of those windows, also. Alas.

(All photos from Douglas Elliman, obviously.)

guessing is a crummy way to do comps

The very successful marketing campaign for loft #4B (contract within a month, $55,000 over the ask) lacks magic words like no-detail-overlooked-renovation or recent-renovation or even gut renovation; the broker babble does say “beautifully designed … and pristine move in condition“, but that seems to me curiously understated if, in fact, there was an extensive renovation after 2007.

The 2007 marketing campaign also features modest babbling (bragging limited to “a tremendous cook’s kitchen“) but has a similar enough floor plan to suggest that any renovation after 2007 was less than “gut”. Comparing the listing photos (old ones are best seen on the Corcoran site) reveals that the kitchen and two baths are substantially changed and that the (formerly) dropped ceilings have been opened up to reveal the beams. (Best observed in the first two old listing photos, of the kitchen and living room.) I love it when owners bring back original ceilings, partly for the height (and associated volume) and partly for the look (flat dropped ceilings with high hats are so darn … flat). That kind of change suggests a general scrubbing of the loft, but I don’t see other changes like new (or restored) hardwood flooring or brick exposed by stripping more sheetrock, or fancy cosmetic work such as stripping iron or wood columns.

The new kitchen and two new baths look fancy enough, but it is impossible to intelligently guess at the budget for these upgrades. Anywhere from $75,000 to $300,000, but nowhere near the difference between the clearing price of $2.65mm and the pre-renovation September 2007 price of $1.975mm. (Assume a $300,000 renovation as we just play with numbers; the market gain would then be 16.5%, still a much larger gain than the 7.3% the StreetEasy paired resale Index for the overall Manhattan residential real estate market would imply.)

So it looks as though the buyer-in-2007-turned-2014-sellers created substantially more value in upgrading the plumbing rooms and exposing the old ceiling. And got almost $1,400/ft in a few-frills coop with no light or view.  Nicely played, sellers; nicely played.

moving uptown, in so many ways

Of course I am curious about where people who sell downtown Manhattan lofts go after they sell. Based on the notice address for sellers in the deed record, the folks who did such a nice job upgrading loft #4B in central Greenwich Village (and who profited nicely) moved way north to prime Upper East Side into a space that is at a whole ‘nother level of values. It appears that they rented rather than purchased this truly stunning duplex on Park Avenue at 87th Street (hard to get up-er Upper East Side than that) that is much larger than loft #4B (“3,228 sq ft”!) that was recently asking $32,000/mo for rent and (gulp) $9.95mm for sale. You don’t often see folks move into space worth nearly four times the space they left. But if they were tired of no-light-and-no-views they surely solved that problem (Note the corner views up Park Avenue and toward Central Park in the losing photos for the stacked master suite and living room. Yowza.)

Seems like their ship came in sometime in the last 7 years. Maybe even a bigger ship that that of George and Louise 40 years ago….

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is there a discernible market impact to long-running litigation over defects in luxe Flatiron loft development?

by Sandy MattinglyPosted on Posted in manhattan real estate business — No Comments ↓

some Manhattan loft topics never get old, though they do repeat

The story about the 2010 new Manhattan loft development at 141 Fifth Avenue in the heart of the Flatiron district in yesterday’s The Real Deal, Savanna wants claims dismissed in suit over 141 Fifth Avenue, is a fascinating peak into an age-old problem I’ve blogged about before: there is a delicate dance by a condo board in a newly converted or newly built residential building when problems such as leaks, faulty windows, or other construction defects emerge. On the one hand, you want the problems fixed by the developer and/or contractors on their dime; on the other hand, going public with the dispute can cut the market value for unit owners who want to sell, at least until such problems are resolved.

I don’t know much more about this particular building than is reported by David Jones in TRDNY or is evident on StreetEasy, but the article and the sales history in the building provide another opportunity to ponder how this sort of thing impacts owners and potential buyers. There are due diligence concerns and potential mortgage hurdles for buyers; there are potential assessments, refinancing problems, and likely resale problems for owners; and boards have to weigh both unit owner interests in maintaining liquidity in their units and the imperatives to get the problems fixed, as inexpensively for the condo as possible.

these particular new development loft allegations and issues

TRDNY has only a summary of the allegations, but maybe there are not many fans of seeing the quotes that are probably in the court pleadings about these (to me) tantalizing subjects: “widespread problems with water infiltration, heating, plumbing, electrical, façade, terraces and the roof“. You just know (if you’ve seen these kind of pleading before) that there is likely to be a more or less dramatic description of  some of these problems (something like “mud spurting from their bathtubs“, for example). There are only 34 units, and with so many different kinds of problems it is likely that most units have been impacted to some degree, rather than if, for example, there were only a problem with terraces, or only a problem in windows on one side of the building, or electrical problems in only one line of units.

As often happens in these things, anyone involved in the building that someone is accusing of having done anything wrong is, in turn, pointing fingers at everyone else involved, likely saying these things in Expensive Legalese: I didn’t do anything wrong; if I did anything that someone thinks was wrong, someone else is contractually responsible for the consequences instead of me; if I did anything wrong that I am (sadly) responsible for, others did more things wrong; nyah, nyah, nyah….

The timeline suggests that the condo and the developer may have been on the same side in 2011:

“Savanna [the developer], in a 2011 lawsuit in Manhattan Supreme Court, alleged that J Construction [the construction manager], CetraRuddy [the architect] and other subcontractors were responsible for designing and installing defective windows at the luxury property, forcing the developer to hire new contractors to replace them at the cost of $2.4 million”.

But by 2013 there was all-out war, with a classic litigation circle jerk:

“The board originally filed a $2.5 million lawsuit against Savanna in April 2013 alleging fraud, negligence and breach of contract, claiming that design and construction defects exceeded the defective windows, and also sought to replenish a $1.9 million fund designed to correct defects at the property.”

It seems the board discovered more problems after April 2013:

“The amended complaint [by the board], filed in January 2014, raised the lawsuit claims to $7.5 million, alleging widespread problems with water infiltration, heating, plumbing, electrical, façade, terraces and the roof.“

Keep those dates in mind when we review the sales history and talk more about due diligence, below.

of course we have seen this before

I’d have sworn there were more relevant posts in the Manhattan Loft Guy archives, but so far I’ve only found a couple. In my March 22, 2011, when a condo board sues a developer, must resales die?, I did a longish overview of the factors that boards consider when problems are both extensive in scale and beyond punch lists in scope. That post was occasioned by a New York Times article about a very frustrated (non) seller in a Brooklyn condo described as “one of the first condominiums finished in the building boom” (that was 2005) that had what then looked like a $4.7mm problem. That (then, non) seller paid $735,000 when she bought from the original buyer in October 2007 and by the time of the New York Times article had been trying to sell for a year already:

“[reporter Christine] Haughney’s unfortunate seller is a researcher-by-day, bass-player-by-night who has been trying to sell for a year. The listing history shows that she started at $775,000 and dropped twice (to $669,000) before accepting the offer for $632,500 in December that Haughney notes.”

But that same listing history link (the history now concluded), shows that it was not until May 2012 that the researcher/bass player sold, for $590,000. That December accepted offer at $632,500 either evaporated and a new buyer found, or got re-negotiated.

The history of the controversy in that Brooklyn condo is useful here, as it is likely to be typical of the stages through which these controversies play out. That timing could hardly have been worse for that seller, and I wondered then (still do!) how she was caught by surprise. The 141 Fifth Avenue saga probably included these or similar steps:

Unknown to the seller (!), the condo board was then on the verge of suing the developer, after a series of unit owner complaints, two engineering reports, negotiations with the developer, the board’s complaint to the New York State Attorney General’s office, and (obviously) a lack of resolution.

I’d have thought that any unit owner paying even a little attention would have known that there were potentially major problems at least by the time of the engineering reports. And I wonder what the 141 Fifth Avenue unit owners knew, when, about the “widespread problems with water infiltration, heating, plumbing, electrical, façade, terraces and the roof” that became the basis of the 2013 lawsuit.

The other relevant post from the Manhattan Loft Guy archives was my July 25, 2013, is the hyper-local Manhattan loft market at 80 John Street up more than 5% in a year?, in which I did a somewhat comprehensive review of sales in a 2007 new development in the Financial District that went through litigation against the sponsor (and, others, ahem), as I hit in my my January 8, 2013, the baths get a little crowded, as another South Star loft at 80 John Street clears below sponsor sale. By July last year, the hyper-local market in that building seemed to be recovering from the litigation history, and I addressed there the way that (finally getting to) litigation can be a helpful thing for marketing (at least compared to the immediate pre-litigation mess):

Maybe the suit actually being brought solidified things enough to make it easier for buyer attorneys to assess risk (thereby, to grease the hyper-local market), or maybe the overall Financial District small-loft market is just more solid in 2013. Whatever, just sold for 7% more than the sellers paid when they bought it from the sponsor on August 9, 2007.

In that building, 10 of 12 sales in 2012 were below the sponsor sale prices in 2007, while to that point in 2013, 4 of 7 sales beat that performance.

In broad terms, by 2012 The Market seemed to be discounting for the litigation history at 80 John Street (and holding it against sellers) while in 2013 The Market was (beginning) to treat the controversy as legacy issues rather than then-active problems.

everyone did the diligence that was due, right? Bueller??

The sales history at 141 Fifth Avenue is … interesting. (Remember the timeline above, with 2011 lawsuit by developer, then the board against the developer in April 2013 and the amended complaint that raised the ante to $7.5mm 8 months ago.) This post is getting to be much too long, so I won’t take the time (or the word count) to go into detail on the 141 Fifth resales, but I see only 2 in 2011 (3, but the last one was not publicly marketed) and (most interesting) none from the end of 2011 until July 2013. My working assumption would be that The Market during those 18 months did not like the uncertainty over the allegations flying around (or, that unit owners refrained from trying to be sellers, in anticipation of that market reaction).

The two 2013 sales were in July at $1,733/ft (put together this and this) and $1,876/ft last October. Compare that range to the sale of #7C in May at… (wait for it) … (while you’re waiting, recall that the ante was raised to $7.5mm in January 2014) … $2,548/ft. Maybe there is something about the light or views from these units to account for some of this difference (the #7C broker babble doesn’t suggest so), but it sure looks to me as though The Market in 2014 is much more comfortable with the litigation issues than it was in 2013. (Assuming The Market was properly informed this year, as it had to have been with all these public records floating around.)

I assume the May 2014 #7C buyer LLC at a 36% dollar-per-foot premium to the October 2013 sale was, in fact, fully informed about the January litigation (did I mention that it was for $7.5mm?) when it signed the contract in April. How could it not have been???

The litigation status as of the April contract for #7C looks like it fits my surmise about the potentially beneficial impact of litigation in a long-contested sponsor mess, quoted above, and now again:

Maybe the suit actually being brought solidified things enough to make it easier for buyer attorneys to assess risk (thereby, to grease the hyper-local market)….

the babbling doesn’t read that way

TRDNY summarized the amended complaint in January as “alleging widespread problems with water infiltration, heating, plumbing, electrical, façade, terraces and the roof” and claiming up to $7.5mm in damages. The broker babble for the #7C sale may have been written when the listing first went live (in October 2013, before the amended complain, but 6 months after the original complaint), but the surviving copy on StreetEasy was ‘live’ for about 3 months after the amended complaint was filed. Cynical observers of the Manhattan Residential Real Estate Complex might be amused by what follows, but others won’t be. 

That broker babble describes the loft as “beautifully crafted” and the building as featuring “fully restored ornate 1897 terra cotta detailing, copper cupola and curved plate glass storefronts“; to sum, “this is a highly detailed home for sophisticated palates“. Not a word about “widespread problems with water infiltration, heating, plumbing, electrical, façade, terraces and the roof”. One assumes that the agent fully informed every serious potential buyer about the litigation, and I don’t meant to suggest this agent did anything wrong. (There but for the grace of God go I ….) But the textual contrast between “beautifully crafted” and “fully restored” on the one hand, and “widespread problems” is … jarring. 

Any careful buyer would know Something Is Up from the babble, however, even if that buyer was not represented by a buyer agent. You saw it, right? The babbling ends with:

Please note: there is a monthly assessment of $1,998.18 through December 2014.

Likely, everyone is going to ask about that, if for no other reason than that the assessment exceeds the monthly common charges for the unit. Perhaps that is how they are funding the litigation; regardless, it is almost certainly related to the problems that resulted in litigation.

things have always been thus

Of course, the possibility of sponsor litigation, or of construction defects, is an inherent risk in all new development purchases. Always has been, in fact.

Maybe the sponsor goes bankrupt (or, the well-heeled Brand Name developer’s thinly capitalized LLC formed to shield the developer from liability succeeds in doing exactly that) and fails to fund the reserve fund. (Remember that April 2013 allegation that the 142 Fifth Avenue sponsor failed “to replenish a $1.9 million fund designed to correct defects at the property“?) Or maybe the sponsor’s contractor’s failed to put in windows that, you know, closed, or roofing that was, you know, sealed, etc, etc. Stuff Happens. Not every time or to every buyer, but often enough to be a risk factor.

Those in the MRREIC with long memories will remember that sponsor litigation was a common fact of life in the wave of Manhattan coop conversions in the late 1970s into the 1980s. The small coop of which I was board present for ten years was but one example: a circa 1978 conversion into 18 residential coops on top of two floors of commercial space retained by the developer, to which the coop (eventually) took ownership in settlement of litigation with the then broker developer. Stuff Happens. And, over time, it almost always works out.

I will close this over-long post with one more summation: the fascinating thing about the condo highlighted by TRDNY yesterday is that someone paid a huge premium over past sales during as yet unresolved litigation over “widespread problems”.

I admire their fortitude and wish them only good fortune.

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pair of Tribeca loft sales at 27 Leonard Street show 15 feet of wall is worth about $200,000

by Sandy MattinglyPosted on Posted in loft neighborhoods tribeca — No Comments ↓

not to pay the carpenter, but for the Manhattan loft buyers who had to have 2 bedrooms

The “1,636 sq ft” full-floor Manhattan loft on the 4th floor at 27 Leonard Street sold three weeks ago for $3mm. Its many charms include that it’s been “freshly renovated” in a no-detail-overlooked manner, “abundant sunshine”, a “gourmet” kitchen, and classic loft elements like exposed brick and beamed ceiling. But the key feature may be the little L-shaped wall at the top of this floor plan:

The 3rd floor loft was also in no detail-overlooked condition, with “a gorgeous new kitchen with top-of-the-line appliances“, and a floor plan that is identical to the 4th floor except for the north end of the loft, which lacks that “L”, so has one bedroom of nearly 400 sq ft where the loft above splits that space in two. Neither loft clears the roofline on the south side of Leonard Street, but it is possible that the 4th floor has more “abundant” sunshine than the 3rd floor, but I doubt the difference is material. The Market loved both lofts, but not quite as lovingly.

The 3rd floor took 4 weeks to get into contract before closing at the full price of $2.8mm on April 28. That’s a heck of a price, given that the last public sale in the building was in March 2007 and was then a building record high and just a tad under $2mm (this sale in January 2008 doesn’t count, despite looking like a market price, because it was clearly a related-party transaction).

You already know that the 4th floor just sold for $3mm, but the marketing campaign started as though the sellers and agent figured they should adjust slightly up for a slightly higher floor: they asked $2.875mm on May 17 and needed until June 20 to get into contract after sorting through at least two bidders, at least one of whom was willing to exceed that asking price. (It is possible that they also counted on a stronger market from April, but the StreetEasy Condo Index has the same value for the overall Manhattan residential real estate market in April and June [the most recent month in the Index].)

I haven’t seen the two lofts in real life (and under optimal sun), but I don’t read the broker babble or listing photos as presenting a difference in quality in the two lofts, just that one flight up and two bedrooms out of 400 sq ft of north wall instead of a large single bedroom on the lower floor. (Note that even the closet array is identical on the north end of both lofts.) You can see that there’s nothing fancy in the ‘extra’ wall on the 4th floor (it’s on the left in the master bedroom listing photo #7 and the right in the second bedroom photo #8). Is that the sort of carpentry and electrical work you can do for 4-figures? If not, it can’t creep much into the $10,000+ zone.

big bang meets little buck

To review, that (say) $10,000 in difference in build-out contributed to $200,000 in market value, under market conditions that are as similar as the StreetEasy Condo Index can show, in apparently otherwise equivalent condition.

And the recent 4th floor seller was not even the one who made the investment in the wall. The “Past Activity” tab on the StreetEasy building page shows that these two lofts were sold by the developer within 4 weeks of each other as 2000 turned into 2001, with the 3rd floor having a single bedroom and the 4th floor two. There’s always a danger in over-interpreting new development pricing (especially relatively ancient new development pricing such as this), but The Market way back when thought these two lofts were essentially equal in value, with the 4th floor selling for $993,000 and the 3rd floor for $995,000 4 weeks later.

If you just looked at the room counts (the way proper “apartments” are comped) you’d think that the second bedroom on the 4th floor really is worth $200,000 more than the 3rd floor, having only that one bedroom. Then some real estate pundit would talk about the buyer pool willing to spend around $3mm for a 2-bedroom home is deeper than the buyer pool willing to spend around $3mm for a 1-bedroom home. But the floor plans tell a different story. There’s nothing simpler than taking a classic Long-and-Narrow loft about 23 feet wide and adding a wall. (The kids or your guests are not going to win in a fight over the middle window.)

Not knowing the two sets of buyers or the two sets of sellers involved, or when the later buyers were in the market, I can’t know why the 4th floor sold for $200,000 more in flat market conditions. But if it really was because the 4th floor buyers would only buy a 2-bedroom, those people are nuts. The 3rd floor buyers could put up the same wall as is on the 4th floor, and (in theory) create $200,000 or so in market value by spending $10,000 or so.

To repeat: that’s nuts. The Market is not supposed to work that way. Even if there really is an appreciable difference in that “abundant” sun on the 4th floor. Stop me if you’ve heard this before: “The Market” is made up of the aggregate decisions of a multitude of buyers and sellers, while clearing prices for specific lofts are determined by specific buyers and specific sellers.

I know you’ve heard this before: comping is hard. So I really wonder what the bank appraiser for the 4th floor sale (if there was a mortgage) thought about all this. The 4th floor sold for 7% more than the 3rd floor, obviously in the same (no frills) building, 4 months later but in apparently identical overall market conditions.

The 4th floor buyers were in a bidding war, and did what they needed to do to win. I suspect that competition was a market-distorting circumstance here. I needed a good head scratch today; now I have it. Perhaps you did, too. Or perhaps you know enough of the details to offer a better explanation than that this is $200,000 worth of market noise.

 

 

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flashy 88 Laight Street loft underperforms, answers question “when is a 17 foot ceiling not 17 feet?”

by Sandy MattinglyPosted on Posted in loft neighborhoods tribeca — No Comments ↓

the mezzanine curse of (some) Manhattan lofts afflicts this Tribeca  loft

I am going to save you some SHOUTING (you’re welcome) by noting that the broker babble for the recently sold “1,982 sq ft” Manhattan loft #8 at 88 Laight Street begins this way: “ultra contemporary mega loft with 17′ ceilings”. Some of that babble is true, as we’ll see; the babble continues with a litany of features of what must be a lovely loft: full floor, convertible 3 bedrooms plus home office, landmark city and river views that include the Empire State Building, central air, 4 exposures, over-sized windows, and more (and more).

No one was misled about the nature of the loft, as the listing photos and floor plan tell the story that the words elide. Only the most unsophisticated consumer would be surprised to note on entry that this loft has relatively little volume for a Tribeca loft, and much less volume than 17 foot ceilings, over-sized windows, and “1,982 sq ft” usually imply. The reason is obvious in the main listing photo, showing a ‘great room’ that is about 12 feet wide, or 12 foot narrow:

(Photo by Douglas Elliman, obviously.)

Just out of view, above the photographer from this angle, is the mezzanine that continues along the right wall to the facing wall at the far end. That’s how you get  “1,982 sq ft” (and room for 3 bedrooms and a home office) out of a foot print that seems to be about 55 feet long and (at its widest) about 20 feet deep. (The dimensions on the floor plan don’t add up, but that’s a minor sin in these fraught marketing materials.)

Yes, those are 17 foot ceilings. But they extend only about half of that long south wall, while the entire long north wall and the narrow east and west sides of the loft stack the living space with a wraparound mezzanine, leaving perhaps three-fourths of those “1,982 sq ft” with ceiling heights no more than 8’6″. Look at the photo above, and see the uses in front of that stretch of over-sized windows: a dining table with two dining chairs on one side and a bench no the other, and a seating area with two chairs facing a narrow couch. Not very “mega” to me, but your mileage may vary….

how to underperform the market at nearly $2,000/ft

If you peaked at the StreetEasy listing data you already know that the loft sold for $3.95mm a month ago. Especially considering how many of the “1,982 sq ft” suffer from un-lofty mezzanine ceilings, that is a very impressive $1,993/ft (before adjusting in a small way for the 140 sq ft balcony). That sale took three months to solidify into contract, at a modest discount from the $4.295mm ask. So why the epithet, “underperform”?

The recent seller paid $3.9mm to buy two years ago. The overall Manhattan residential real estate market, as measured in a single number by the StreetEasy Condo Index, is up 19% in those two years (from 196.40 in August 2012 to 234.06 in June 2014, the last month available). It hardly needs calculating, but the recent sale (at a gain of $50,000 before considering the sales fee and transfer taxes … ugh) was a “gain” of … (wait for it) … 1.3%.

Based on the overall Manhattan market stats, the $3.9mm in August 2012 and $3.95mm in July 2014 don’t fit. Of course, the Index is just a representation of the overall market (described modestly by StreetEasy modestly as “giv[ing] a feel” for the Manhattan condo market), so no one loft should be expected to fit precisely. But the gulf between the 1.3% experience of those sellers and the 19% for the overall market is dramatic, especially in a set of current market conditions in which the overall press narrative is that this is a seller’s market.

For anyone using the 2012 and 2014 observed market vales for the 8th floor loft, at least one of these valuations was just wrong. (Put in a more refined way, these two sales are difficult to reconcile with the overall market data.) It is often hard to tell which price in a same-loft sale pair is the wrong one (did the seller get squeezed on the sale, or overpay on the way in?) but in this case it seems that the market-outlier in this matched set was the purchase price in 2012.

how bidding wars can generate data points that complicate future comp analysis

Had the price history of the 8th floor loft matched the valuation implied by the StreetEasy Condo Index, the purchase at $3.9mm in August 2012 would have been followed by a sale in July 2014 above $4.6mm. (Which is another way to make the point about the vast gulf between the 2012-2014 same loft sales history of this particular loft and the overall Manhattan condo market.) Two things suggest to me that the gulf is due more to the 2014 seller having overpaid in 2012 than from having sold below market last month: the recent asking price was only $4.295mm and the 2012 asking price was only $3.625mm.

The recent asking price is interesting because it was the considered judgment of the listing agent and the seller that the loft in 2014 was not worth what the overall market stats would imply based on the 2012 purchase price. Allowing that the seller and agent would not have known when in 2014 the loft would sell, the recent ask was still ‘too low’ in comparison to the $3.9mm purchase price and the StreetEasy index when the loft came to market in March 2014 (the index value in March was essentially flat to June’s value). If the seller and agent had faith in that Price + Market Increase approach, the ask could reasonably have been above $4.6mm; clearly, they did not.

The 2012 asking price is interesting because it provoked a bidding war, which the recent seller “won” by paying $275,000 over the ask. We are getting into murky metaphysics here, in contemplating that a free market valuation established by a willing seller and a willing buyer in either 2012 or 2014 is wrong (cannot be reconciled with other data), but that’s what happens when you try to reconcile two specific data points that are counter-trend.

I will admit to never testing this vigorously, but my working hypothesis when seeing mismatched data points in a same-loft paired resale set is that if one was the product of a bidding war it is most likely that data paint that is funky. When a seller has but one buyer with which to negotiate, the seller has complete information for how many buyers are interested at an asking price that was established to generate buyer interest (that’s easy: the seller sees only one buyer) while the buyer has pretty good information (that there’s no other active buyer, a reasonable inference from not being told that there is another bid); in that situation, the seller might get a buyer to pay the asking price because the buyer is fearful that another buyer might come forward, but the seller can’t get a reasonable buyer to pay more than the ask unless / until that buyer is truly afraid of competition.

But the relative balance of information between seller and buyer breaks down when there is more than one buyer. The seller knows exactly how many buyers there are, what their initial bids were, and how qualified they are. Each buyer, however, operates in a Fog of (Bidding) War, to coin a phrase. Each buyer probably knows whether there is one “or more” bidders, but most seller agents seem to believe it a best practice to not reveal exactly how many bidders there are; similarly, each buyer may be told whether there is a bid at or above ask, but usually not much more. (My analysis assumes, of course, that what seller agents say to buyers in multiple bid situations is true, as that is what I believe whenever my buyer is dealing with an experienced and professional seller agent; I understand that some civilians think my assumption is naive.)

Each buyer in a bidding war is forced to focus less on “what do The Comps say this loft is worth?” and more on “how much is this loft worth to me, given that someone else is trying to buy it away from me?”. That’s a dense fog in which to operate, leaving open the possibility that in August 2012 the recent seller of the 8th floor loft might have won the bidding at $3,700,888 as easily as it won it at $3.9mm. (Clearly, the market value was believed by at least two bidders to be $3.625mm or more.)

I have to wonder if the recent seller worried from the very beginning that it had overpaid in 2012. If it had paid roughly $3.7mm (or later believed $3.7mm to have been the fair market value then), the March 2014 asking price of $4.295mm could be rationalized more easily with the overall market index. $3.7mm plus 19% market appreciation yields an implied value of about $4.4mm … still not quite in sync with the index trend, but closer in scale.

If you are still with me … whew! To recap: I don’t think the “mega loft” babbling fits a loft that has 17 foot ceiling in a small part of the space and a great deal of space with ceilings under 9 feet; and I am easily distracted by market facts (prices agreed to for specific lofts by specific buyers and specific sellers) that run counter to market trends.

I am going to stop before I digress again, but will leave a Note to Self … to consider future instances of same-loft paired resale sets in which at least one data point is off kilter and in which at least one was the product of a bidding war.

 

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