Placing A Roomba In The Middle Of A Rich Creamy Housing Market

Because we all love rich, creamy pudding, I used it for a luxury market analogy this week. Oh, and Happy Holidays to all – see you next week!

Wait for it…

But I digress…

Cash Is No Longer King For Luxury Buyers

The plunge in cash buyers above $5 million (top 8% of the Manhattan market) might be attributable to the wealthy taking advantage of the plunge in mortgage rates over the past year. However, I believe it is much more indicative of the exodus of investors from the market after the passage of the new rent law in New York state that punishes aspiring landlords.

The exodus of investors has a significant impact on the current absorption as well as the future of new development activity since at least 25% of new condominium sales were made by investors and there is nearly a decade of stock to sell-off. Investors typically become landlords on the day they close.

Creating “Combos” May Be One Way Around New York’s New Rent Law

There is a good Wall Street Journal article using empirical data to show the change to apartment renovations since the frenzy of new New York State housing-related laws first half of 2019.

While it is a small data set, combining units are catching on, taking advantage of the market premium for larger contiguous space.

In Manhattan Townhouse Sales, Width Matters

The widest house I’ve ever appraised was a 50-footer on the Upper East Side in the park block between Madison and Fifth Avenues once owned by the son of the IBM founder Thomas Watson and had remained a gutted shell since the late 1980s before the previous sale in 2006.

The second widest sales I am aware of was the 48-footer created by the Milbank family in 1920 by combining two houses at 14-16 East 67th Street. My firm and I have appraised that house a number of times over the years, before and after its complete gut renovation.

Clearly a wider house enables more square footage but there is another reason why width is a valuable amenity on its own. Because townhouses are normally built right up to the lot line, townhouse width can’t be expanded unless the adjacent property is acquired. In a high-density market like Manhattan, width is a key valuation metric.

The Milbank family also created a 55-footer in Greenwich Village years ago and it is now on the market with a new price cut to $50,000,000.

What’s so interesting about this house is that the exterior is maintained (I believe it is landmarked) as original yet the interior is modern.

[Click image to see NYT slideshow]

Since the financial crisis, there have been at least 10 sales at or above $25,000,000 downtown. The metrics for downtown townhouses contain the largest average width of any region in Manhattan. According to our Elliman townhouse report in 2018, the average width was 24.9′ while Manhattan averages 21 feet.

Here’s a hypothetical about townhouse width: two homes equal in square footage are side by side in identical condition. One is 50′ wide and one is 35′ wide. The 50-footer enjoys a significant premium in the market.

In A Weakening Market, More Manhattan Co-op Boards Are Killing Sales That Are ‘Too Low’

I’ll be writing about this phenomenon a lot in 2020 but I’ve been told that a growing number of boards are killing sales they deem too “low” even though the sale was vetted by the market – properly exposed, fully qualified buyer, etc.

A leading real estate broker, Donna Olshan, that I’ve known for most of my career, shared a letter written to a board that described the efforts to sell the apartment to offset certain board members who felt the price was too low. I’ve redacted everything that would reveal the parties but you get the point. The letter conveyed the reality of selling co-op apartments in today’s market.

Here’s my message to all co-op boards who do this – THE MARKET DOESNT CARE WHAT YOU THINK. By killing sales you think are too low, you are violating your fiduciary responsibility to the shareholders by acting this way. Co-ops that do this are damaging shareholder equity as brokers steer would-be buyers away from boards that are violating their fiduciary responsibilities.

The letter:

October 28, 2019

Board of Directors
[redacted] c/o [redacted] New York, N.Y. 10128
Re: Apartment [redacted]

Dear Board of Directors,

I am writing to provide context for the sales price of $[redacted] million of apartment #[redacted] located at [redacted].

Before being listed for sale, the apartment was professionally staged and refreshed at great expense to [redacted]. Additionally, a professional photographer was hired to insure the portfolio of listing photos were just right. (Please See attached photos):

On May 22, 2018, the unit was listed in the multiple listing service run by the Real Estate Board of New York (REBNY-RLS) and disseminated electronically to its approximately 12,000+ residential members. The original listing price was [redacted]. The apartment was shown numerous times however the owners received no offers and by the end of December 2018, the unit was withdrawn from the market so the listing did not appear as stale.

On March 13, 2019, it was relisted at a reduced price of [redacted] million in the hopes that listing earlier in the Spring at a lower level would draw buyers. It did not.

On May 6, 2019, the price was lowered to [redacted].

By August 2019, a contract was signed at [redacted] million.
This was the ONLY offer that the seller received during the entire marketing period.

The current market has been on a consistent downward swing since Congress changed the tax law at the end of December 2017 when the deduction for state and local taxes (including real estate) was capped at $10,000. The mortgage interest deduction was also reduced to a maximum of $750,000. Since 2018, the pool of buyers has shrunk and there has been an increase in inventory. Unit [redacted] was caught in a downward cycle and by any metric available, the market continues to head south. Below is a 3rd quarter report written by the appraiser Jonathan Miller for Douglas Elliman. Jonathan is considered the dean of appraising in the industry and is frequently cited in mass media and is consulted by various institutions:

I have been a professional in the real estate business since 1980 and my career spans many markets, properties and clients. I am very experienced in the market and conditions and can confidently state that the price achieved is fair market value and the unit has been thoroughly market-tested.

Very truly yours,
Donna Olshan


Getting Graphic

Len Kiefer‘s Chart Handiwork


(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Happy Holidays From Appraiserville

May your holiday gifts include the perfect comps…

OFT (One Final Thought)

I once read that the Washington Square Park Arch was made of wood. Apparently not.

UPDATE A loyal Housing Notes reader tells me today:

Hey jonathan:
You confused washington square arch with the victory arch.
See link below.

You almost had a perfect year!

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

– They’ll clean their carpet;
– You’ll be more into pudding;
– And I’ll write a letter about the market.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog

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