“Just Say No” - The Anatomy of a Flip
“Just Say No” - The Anatomy of a Flip
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“Just Say No” - The Anatomy of a Flip
Property Spotlight – On the Market
100 Beacon Street, unit 6 – We Love the Apartment, But We Don’t Love the Valuation
Well Bought/Well Sold
300 Boylston Street (The Heritage), unit 603 – Aging in Place on Boston’s Central Park South – Well Bought
400 Stuart Street, unit 22E (The Clarendon) – Another Quarter Million Dollar Loss – Well Sold
“Just Say No” - The Anatomy of a Flip
We’ve been on the record that buying individual condominium units strictly for investment purposes is a horrible way to build wealth. Unit 5102 at 1 Dalton Street (the “new Four Seasons”) was listed for sale this week for $10.45 million ($3,548/sf), 16% above the November 2019 purchase price.
We’re going on a limb and assuming that this unit is investor owned - it’s titled to an LLC with a mailing address c/o an investment firm, the owner didn’t file for a “Personal Exemption” (a property tax break for people who actually live in their unit), and the unit has been on the rental market. If it walks and talks like a duck, it’s probably a duck.
According to MLS records, the investor paid $8.95 million for the unit in November of 2019 and subsequently offered it for rent for $30,000/month. They finally found a tenant in February of 2021, renting the unit for $15,000/month, 50% below the original price – that wasn’t in the business plan.
We’d expect that the P&L on this venture looks something like this:
By our calculation, the best case scenario for the seller is a lackluster return on their investment in the neighborhood of 2.8% (annualized), that assumes that they get a full price offer with a quick closing. We think the more likely scenario involves price reductions, and just a 5% reduction pretty much wipes out any profit.
Buyers need to understand sellers’ motivations. Paying what we see as a $1.5 million premium to bail out someone’s ill conceived investment would be foolish. Buyers should just say “no thank you” and walk away. We reached out to the sales office at 1 Dalton and were told that the developer still has something like 25 unsold brand new units, so why the premium for this unit?
The good news for buyers is that wise investors should understand the concept of diminishing returns. In this case, forgetting about the cost of capital, the direct carrying costs are about $185,000 a year. They’d be smart to take a loss, lick their wounds, and move on to their next investment. Bid accordingly.
1 Dalton, unit 5103 is listed with Campion & Company. We’d be happy to set up a showing and walk you through our valuation analysis.
Property Spotlight
Batterymarch Group is focused on buyer representation, so the highlighted listings are not ours. These are our opinions, so take them with a grain of salt. We’re happy to set up showings of these properties, offer our valuation analysis, and assist with preliminary renovation budgets when needed.
100 Beacon Street, unit 6 – We Love the Apartment, But We Don’t Love the Valuation
Unit 6 at 100 Beacon Street, a 4,140 square foot 4 bedroom floor through hit the market this week with an asking price of $10.5 million ($2,536/sf). The unit has direct elevator access, 30+ windows, onsite garage parking for two cars, and the building is staffed 24/7.
We’ve written about the building a few times and we won’t rehash it all here, except to say that it’s a great location, but on a very busy intersection. Probably the biggest knock on the building relates to the condominium fees, which for this unit will run you $7,490 a month. Fees tend to be higher in smaller staffed properties (this is a 16 unit complex).
From a valuation perspective, it’s clear that sellers are looking at the prices realized at 29 Commonwealth Ave (see “Haddon Hall - You’d Think That They're Giving Them Away”) and adopting a rising tide lifts all boats mentality. The market may prove us wrong about this, but as we see it, the prices paid at 29 Commonwealth were unrealistically high and we wouldn’t extrapolate them.
This is a great unit and getting over 4,100 square feet on a single floor in the Back Bay is unheard of. Valuation aside, the only real knock we see is the kitchen which is nice, but underwhelming. The finishes in the building are generally good, but not outstanding. If we were ponying up $10.5 million for an apartment, we’d demand outstanding finishes.
We’d highlight that penthouse unit B at 100 Beacon, a similar size duplex with a private roof deck, sold in an off market transaction for $9.3 million ($2,277/sf) a little over a year ago (see "100 Beacon Penthouse - Great Unit, Busy Intersection, Well Sold"). Unit 6 is a mid-level unit without any outdoor space and is far less desirable in our opinion. We would expect this unit to trade at a discount to the recent penthouse sale.
The Wall Street Journal featured the unit in a puff piece a few weeks ago and the seller stated that they turned down a $750,000 offer for one of their onsite parking spaces. It should be noted that the last sale for a parking space at the Brimmer Street Garage, which is only about two blocks away, was $460,000. We’d be tempted to take that trade.
The very high-end of the market continues to be strong, but not all units are “very high-end.” This is a great unit, but we’d stop short of putting it in the coveted very high-end category.
100 Beacon Street, unit 6 is listed with Coldwell Banker’s Back Bay office. We’d be happy to set up a showing and walk you through our valuation analysis.
Well Bought/Well Sold
300 Boylston Street (The Heritage), unit 603 – Aging in Place on Boston’s Central Park South – Well Bought
It took a total of 773 days on the market and five price cuts, but unit 603 at 300 Boylston Street has a new owner. This 2,294 square foot 2 bedroom sixth floor duplex sold for $4.45 million ($1,940/sf), a 34% discount to the absurd original asking price of $6.75 million.
The stretch of Boylston Street between Arlington and Charles Street is home to Boston’s original Four Seasons (with 89 condominium units), Le Jardin (with 8 units), and the Heritage with its 87 units. Sitting directly across the street from the well manicured Public Garden, we consider this the Boston equivalent of New York’s Central Park South. It’s an outstanding location.
Yes, the unit is in need of updating, and yes, the building has a bit of an assisted living facility vibe. A lot of the units that come on the market at the Heritage are dated. We chalk this up to the fact that the units tend to be under long term ownership – it’s a nice place to live, and age in place. With a private walk out terrace overlooking the park, Beacon Hill, and Downtown, the aging process will be much more enjoyable (and you’ll save a fortune on vitamin D supplements).
When we look at what units are fetching five blocks down Boylston Street at the Mandarin Oriental, we see value at the Heritage. There isn’t any question that if you want the very highest level of service, the Mandarin wins, but when you walk out of the Mandarin you’re staring at bank branches, a discount mattress shop, and the Apple Store. When you step out of the Heritage, you’re looking at one of the finest public parks in the country. This unit was – Well Bought.
400 Stuart Street, unit 22E (The Clarendon) – Another Quarter Million Dollar Loss.. – Well Sold
After six years of ownership, the seller of unit 22E at 400 Stuart Street, a 1,958 square foot 3 bedroom unloaded it for $3.9 million ($1,991/sf), $45,000 below what they paid for it back in 2016. Adding insult to injury, after deducting standard fees and taxes, that actual loss is in excess of a quarter million dollars.
The unit itself is nice, but about as generic as they get for these newer buildings, which are growing like weeds in Boston. The owners at 400 Clarendon were up in arms about the new Raffles hotel and condominium development just a half a block away. Their grievance was understandable, who wants their dramatic westerly sunsets replaced with yet another shiny glass tower right in their face?
The development activity on the south side of Boylston Street, or what we call “Back Bay 2.0” (see “Back Bay vs Back Bay 2.0 – The Glut of New Development”) is going to continue to weigh on values. As buyers get lured into these new sterile properties, demand is getting pulled away from the traditional Back Bay. This shift should create good relative value opportunities for those looking for a traditional Back Bay home.
Selling real estate at a loss never feels good, especially in the context of endless press reports about how wildly strong the real estate market has been. We think the seller’s decision to punt was a brilliant move, it was – Well Sold.
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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to the real estate brokerage.