- Higher monthly maintenance for co-ops costs drives down achievable sales prices
- Office-to-residential conversions weren’t more commonplace until the 1980s
- Manhattan’s financial district continues to transition from 9-5 to 24 hours
When I was a kid in the late 1960s, I learned that the Sinclair Oil Corporation had a dinosaur on its logo. That simple fact made it the best oil adults could put in their car as far as I was concerned.
A few years later, as a fifteen-year-old, I rode my bicycle across the U.S. with other like-minded people for 82 days, eager to see the country on roads with less than ten cars per hour. My parents bought me a one-way ticket to Oregon (“He came back!” was a family joke staple for years). Home at the time was the Maryland suburbs of Washington, D.C. I rode from Oregon to Virginia in the summer of ’76 to celebrate the country’s Bicentennial. After exiting Yellowstone National Park, I found myself riding through Sinclair, Wyoming.
Sinclair was a very small town that had an oil refinery so you probably get the picture. I soon saw one of those Dinosaur signs at a gas station and had that same thought about the dinosaur on the Sinclair logo. I was now actually in the town named after the oil company I had read about with the dinosaur logo.
Fast forward to early in my Manhattan appraisal career in the second half of the 1980s, periodically I appraised co-op apartments at 55 Liberty Street, the former headquarters of Sinclair Oil Corporation. Each time I entered the building lobby for an appraisal, I smiled with the same thoughts about the dinosaur logo that I had as a kid.
These dinosaur memories were revived when I read the recent New York Times piece on Joseph Pell Lombardi, the converter of the two-thirds-vacant office tower in in 1978.
“The city was failing,” Mr. Lombardi recalled recently. “The financial district was failing. Nobody wanted to be here.”
New York Times
With just $25,000 down, he bought the 1909 building at a bargain-basement price of $922,000, and then — to the bafflement of the real estate industry — he converted it into 89 co-op apartments. Liberty Tower was the first major residential conversion of an office building in New York’s financial district.
New York Times
With the recent office market correction by WFH after the recent global pandemic, and the high cost of housing, office-to-residential conversions have become front and center in solving two challenges at once.
In the late 1980s, a bank asked me to appraise an apartment that turned out to be the former opulent wood-paneled board room of Sinclair Oil. According to Wikipedia, the board room was the entirety of the 29th floor.
In appraisal nomenclature, I call these assignments “why me” appraisals, because that’s what I say the moment I truly realize how difficult a property is to appraise. In this case, the 29th-floor apartment was uniquely large within the building, and at the time, there was only one similar co-op apartment tower nearby known as 26 Beaver Street to find “comps.” Back then, the Financial District neighborhood, also known as Wall Street, was comprised mostly of commercial buildings with some residential rentals, and the sidewalks rolled up at 5 pm. Since 9/11, the neighborhood has rapidly changed with the introduction of many new condo towers, residential condo conversions, new public spaces, and a slew of new residential services.
Aside from the former boardroom’s unique and impressive features, I also noticed at the time that its monthly maintenance charges for a full floor seemed lower relative to other apartments in the building. In our business, it is not unusual to see a co-op converter allocate a low number of shares for their personal residence. The smaller allocation results in a lower monthly maintenance charge (equivalent to common charges and real estate taxes in a condo) with the remainder of the apartments picking up the difference. I pulled up the Schedule A from the building conversion plan and totaled the shares allocated on several floors below the 29th which appear to take up a similar overall footprint. The letters below represent the different apartments on each floor at the time of the conversion. In share allocations of a co-op in New York City, they tend to be proportional to the apartment size. Higher floors or better views are generally allocated more shares. I only brought this apartment example up because of my dinosaur memories.
Yet with condominiums, the monthly charges (HOA) are usually based on a percentage of common elements which has a more rigid calculation. Higher monthly maintenance charges tend to result in lower sales prices, all other amenities being equal. It is quite common to see higher maintenance charges in older historic buildings as they often require higher costs to maintain.
Here’s an example of a recent contract at 55 Liberty. According to Streeteasy, Penthouse 32 went to contract in May. It was a loft-like 1,700 square footer with 11-foot ceilings and a monthly maintenance charge of $7,095 ($4.17/sqft/mo). The list price at the time of sale was $1,275,000 ($750/sqft) after being placed on the market 13 months earlier for $1,775,000 ($1,044/sqft). Manhattan’s co-op price per square foot averaged $1,187/sqft foot and co-op maintenance sales averaged $2.64/sqft per month in the second quarter of 2024. With much higher mortgage rates over the past two and a half years, co-ops with unusually high maintenance charges could become a tougher sell, a dinosaur, perhaps.
Lower monthly maintenance charges than the competition generally result in higher prices with all other amenities being equal. So do regular oil changes for your car using the best dinosaur oil.
Did you miss yesterday’s Housing Notes?
Housing Notes Reads
- The 84-Year-Old Visionary With One Answer for Two Real Estate Crises [NY Times]
- Liberty Tower (Manhattan) [Wikipedia]
![Brooklyn Sales Price [Average v. Median]](https://millersamuel.com/files/2024/07/3Q24Bklyn-avgMED-1200x794.jpg)
