how to read past sale data / one Flatiron loft laboratory

hint: comping is hard
There’s a fascinating discussion thread going on over at StreetEasy, started by a potential buyer who said “I’m beyon[d] confused with pricing” and then asked that community for advice about bidding on a specific loft in Flatiron. I am going to use that thread as the jumping off point for discussing some things about valuing Manhattan lofts in light of actual facts in a building and in light of general market trends. I am not going to mention the building (it is obvious from the link, d’oh!), but I will use specific facts from that building as the scaffold for discussing questions such as the relevance of past sales of the same loft in different market conditions, assessing recent sales and unsuccessful marketing in the same building, and how general market statistics are (or are not) helpful.

Note that this obviously relates to a current listing of another agent (who happens to be from my firm, and a friend) and I am NOT offering advice as to what that loft is “worth” or advice on what to bid. Again: I am just using this discussion thread to talk about how to talk about this.

Note that this is a really long post, but I want to address all the things below that I talk about. And this is just a blog, though if I had more time, I would make it shorter (a comment variously attributed to Twain, Thoreau, Pascal, Du Perron). Your choice to heed the warning, or to read on….

past sales of The Loft
The Loft was bought from the sponsor in March 2005 for $1,338,998, or $916/ft for “1,461 sq ft”, so one tempting way to look at current value would be to compare building sales from that initial offering in the first quarter of 2005 and at the very end of 2004 to more recent sales.

But those original buyers sold in October 2009, so there is more recent data for The Loft. That sale was at $1.4mm ($958/ft), an appreciation of only 4.6% (without considering expenses), so one is tempted to look at the change in the market over the last 16 months to estimate current value of The Loft.

past sales in the building
The building has only 43 units, so it is not surprising that there were only 2 sales in 2010, 4 in 2009 (one of which was The Loft, another of which was a private sale to a neighbor), only 4 sales in 2008, and only 2 sales in 2007. Despite this thin data, the good news for comping purposes is that these sales were in essentially the same condition, given this was a new development in late 2004. More good news: all these lofts are in a narrow range of size, from ”1,208 sq ft” to “1,461 sq ft”, and nearly all are 2 bedrooms and 2 baths (only 2 sales since 2007 have 1 bedroom and 2 bath layouts). These lofts will vary for light and views, based mainly on how high the unit is (whether you clear adjoining buildings).

One temptation is to extrapolate from the two 2010 sales, on October 29, 2010 at $1,219/ft, and on July 20 at $1,309/ft, after making any light or view adjustments. There is also a very recent comp: one loft on StreetEasy has a recent closed history without a price yet; our data-base shows that it closed on February 1, 2011 at $1.42mm or $1,085/ft.

Another temptation is to extend beyond only 3 sales in the building since last year to look at the 3 market sales in 2009. They were The Loft at $958/ft on October 1, 2009, a 1 bedroom on August 25, 2009 at $993/ft, and the other 1 bedroom on February 26, 2009, also at $993/ft.

If one were tempted to go back and look at Peak pricing as a potential ceiling on current valuations, you’d consider the 3 public 2008 sales (Aug 13 at $1,206/ft; June 18 at $1,215/ft; and Jan 24 at $1,265mm) and the December 17, 2007 sale at $1,357/ft.

past non-sales in the building
In addition to the 2 sales in the building in 2010, 3 lofts were offered for sale for at least a month last year but did not sell. If you are tempted to use these unsuccessful prices as a ceiling, they were at $1,345/ft, $1,250/ft, and $1,026/ft.

temptations and questions
To recap, the temptations are to consider these elements in estimating a current market value for The Loft:

• The Loft sold for $958/ft 16 months ago, so just extrapolate from that market to this
• The Loft sold for $916/ft almost 5 years ago, so just extrapolate from that market to this
• the 3 sales in this building since July 2010 were at $1,219/ft, $1,309/ft and $1,085/ft (use an average, or use as brackets for value, or adjust for light, views and ???)
• the 3 sales in the building in 2009 were The Loft at $958/ft and 2 1-bedroom lofts at $993/ft (perhaps adjust those 2 up for being only 1 bedroom), then extrapolate from that market to this
• the 4 sales at or near The Peak were at $1,206/ft, $1,215/ft, $1,265mm, and $1,357/ft, so average or bracket them as a ceiling
• 3 unsuccessful asking prices last year were $1,345/ft, $1,250/ft, and $1,026/ft might build a ceiling

Of course, this is just data, not judgment. Which of these you view as most important, or how you weight them, must come down to opinion. Different people looking at the same data will form different opinions about the conclusions to be drawn.

the (short) answer to temptation
Sometimes the best response to temptation is to surrender to it, which in this instance means consider all of the above, but weight them as you will.

The principal positive indicators of value for The Loft are the 3 sales since July at $1,219/ft, $1,309/ft and $1,085/ft. The average of these values (a crude instrument) is $1,204/ft; the median (another crude instrument in a set of 3) is $1,219/ft. The average yields a current implied value for The (“1,461 sq ft”) Loft of $1.759mm; the median implies $1.78mm.

If you believe that the sponsor had an accurate sense of the differences in value between units, you could look at how these 3 recent resales did in comparison to their original sales price on a $/ft basis. 

Applying the low figure of 28% appreciation to the original sale of The Loft at $916/ft implies a current value of $1,172/ft, or roughly $1.7mm; using the average appreciation of 33% implies $1,221/ft, or roughly $1.78mm.

on the other hand
There are 3 data sets that seem to me to be the strongest in implying a lower value for The Loft in the current market: it sold for only $958/ft 16 months ago; Peak pricing in the building should be a ceiling; and the unsuccessful asking prices last year should also be a ceiling. How strong are these considerations?

Personally, I have little trouble in discounting the October 1, 2009 resale of The Loft at $958/ft as a significant predictive factor of current value. Long-time Manhattan Loft Guy readers will remember a long series of posts in 2010 about lofts that sold in 2010 at prices that were unavailable in 2009. (To cite one example, my July 8 post, another sign that 2010 is not 2009, as 60 West 15 Street loft sells.) Especially because the appreciation from March 2005 to October 2010 was only 4.6%, compared to the 28%, 31% and 40% gains noted for the 3 lofts that sold here since July, compared to their sponsor sales.

If you take the average of the 4 building sale that were close to Peak ($1,206/ft, $1,215/ft, $1,265mm, and $1,357/ft), you get a ceiling of $1,261/ft, or roughly $1.84mm. If you believe that current prices are down 10% from The Peak, you get roughly $1.66mm; if 15% you get about $1.57mm. But there is one interesting (complicating) building-specific data point here: the same “1,308 sq ft” loft that sold just after The Peak at $1.59mm on June 18, 2008 is the loft that sold on October 29, 2010 for … (wait for it) … $1.595mm. If that data pair is applied more generally, Peak-as-ceiling analysis here is not so useful.

The 3 recently unsuccessful sales prices were $1,345/ft, $1,250/ft, and $1,026/ft; shouldn’t they also be a ceiling? It depends …. That top one at $1,345/ft was asking $110,000 more than at The Peak (it last sold on January 24, 2008; one could argue that it never really tested the market by asking a premium over Peak and not adjusting the ask from July into last month). Similarly, the one asking $1,250/ft without success never dropped the price for nearly a full year into last month, and was asking a 40% premium over its original sale price in December 2004, apparently pushing (exceeding) the market’s tolerance for gain for this loft. That last loft with a 2010 unsuccessful ask of $1,045/ft is on the second floor; arguably the market has always discounted in this building for low floors.

You might disagree, but do you see how this can go? On the one hand, on the other hand … Particularly if you get out of the same-building stuff and bring in macro-level analysis.

how different was 2009?
Again, that October 2009 sale of The Loft at $958/ft is an important data point that must be addressed, not ignored. I think it suffered from being exposed to the nuclear winter that covered the overall Manhattan real estate market after the Fall of Lehman, as it came to market on February 11, 2009, starting at $1.7mm ($1,164/ft)  and dropped twice before finding a contract on August 13 and closing on October 1, 2009 at $1.4mm (the now-familiar $958/ft). Granted, I have noted other lofts that closed that Fall at prices indicating the nuclear winter was in the process of thawing, but this one looks to me as it got chilled by those brutal winter conditions. Your Mileage May Vary.

Looking at The Miller’s numbers for median prices overall it is hard to see any great difference in the overall Manhattan market from mid 2009 to late 2010 in these numbers. The Miller numbers are here, with the low in the last two years being $810,000 in 4Q09 compared to $845,000 a year later. I don’t think this proves very much, and it certainly does not help make a case that the October 2009 clearing price of $958/ft can safely be discounted. Yet that is my belief.

If you look not at prices but transaction volume, there is a different story in The Miller’s numbers. Again, regular readers of Manhattan Loft Guy know that I often say that a thin market is a dangerous market for sellers. I am not going to put my finger (mouse) on one right now, but they will remember the same posts that I do that suggest that there was a single buyer in a building for competing lofts, such that after that buyer bought the left-over loft suffered significantly. Looking at quarterly data for Manhattan overall from 2008 to 2010 (here), it is obvious that the first two quarters of 2009 were a very very thin market, in which transactions were off roughly 50% and 30% from average volume.

Yes, there is an argument to be made that the 3 2009 loft sales in the building under $1,000/ft are a significant down-market indicator for The Loft. But two were not very comparable to The Loft because they were on the 2nd and 3rd floors and only 1-bedroom layouts. So you’d have to adjust those for low floor (less light, no view) and utility (1-bedroom vs. 2) and time (chilly 2009 market vs. now). Could those adjustments add as much as $175/ft in implied value to The Loft in the current market? Maybe, but it depends on your judgment (opinion). And I have already talked about the October 1, 2009 sale of The Loft.

too much data? depends on how you mix it
The judgment comes in determining what factors you think are most relevant, and which are more likely to be noise. Something like that October 2009 sale of The Loft can be distracting (noise) or most relevant, depending on your sense of the market.

Any examples used to prove a point can be over-stated, as there are often contrary examples. For instance, I am sure there are some lofts that closed around mid-2009 at (to me) surprisingly strong prices. I just don’t think The Loft was like that. While I don’t think it was quite the roller coaster of the loft that I hit in my January 6, 345 West 13 Street loft is candidate for sale of the year, but the year was 2009 ($3.875mm in December 2005, $3mm in June 2009, $4.4mm in December 2010), I think the same dynamic was at play. Again: Your Mileage May Vary.

unique value to each unique buyer
It is a truism (and not just a cop-out!) to say that a particular loft is worth what a buyer and the seller decide it is, because that is true. It is also unhelpful to someone thinking about bidding, which was the question that launched the StreetEasy thread.

At the end of the day (and at the beginning and end of the bidding) any potential buyer is going to compare the available lofts for sale against each other to determine which best suits her needs, and to try to find out whether that loft can be purchased within her means and goals. She can always wait (something better / cheaper might come to market), but if she wants to actually buy, she has to persuade the seller of a loft actively for sale to sell it a price that works for her.

Of course, all the stuff discussed here provides a critical factual context for that negotiation, but none of it will determine the result. The result will flow from each party’s willingness to make a deal within the apparent bounds of the other party. The seller may be concerned that there might not be very many buyers interested in his loft; the buyer might be concerned that there are not many lofts that could actually work for her at any reasonable price. If the seller really really wants to sell, he will, and if the buyer really really wants to buy, she will; but if one of them doesn’t, they won’t do a deal.

© Sandy Mattingly 2011