Beacon Hill Mega Do-Over
Beacon Hill Mega Do-Over
$31 million (Good Grief!)
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Property Spotlight
56 Beacon Street – Beacon Hill Mega Do-Over - $31 million (Good Grief!)
Four months ago, 56 Beacon Street, a large single-family home, sold for a record shattering $28.5 million. The “private” transaction got a lot of media attention - rightly so, the price was over the top. Naturally, the realtor community was quick to jump on the bandwagon and cheerlead the bloated price, “it looks over the Boston Common!”
Not surprisingly, we had a different take. In our note, we cautioned that the sale shouldn’t be used to justify asking prices of other overpriced properties - “this is an outlier transaction, and it has no bearing to current valuations.” (see “A $28.25 million Beacon Hill Flex – Well Sold”).
We concluded, “The fact that it previously took nearly four years for the house to sell calls into question whether this truly is a trophy property. This price was excessive and by our way of thinking it was an ill-advised transaction.”
So, when the house reappeared on the market with an asking price of $31 million, our initial reaction was that this must be a joke.
Teddy Roosevelt Slept Here!
Setting aside valuation, if you’re in the market for an 11,000 square foot Beacon Hill house with four car garage parking, this should be on your list. The location is excellent, although Beacon Street is very busy and not for everyone.
The house has an interesting history. It previously belonged to a Harvard classmate of Teddy Roosevelt, and he was a regular guest when in Boston. That’s great for history buffs but doesn’t move the valuation needle for most people.
We found the house somewhat underwhelming. While it does have that grand scale and a lot of original detail, when one walks into a $31 million property, everything should be bang-on perfect. That’s not the case here.
The house is clearly well maintained, and it’s been updated over the years, but it has that lived-in feeling. We’d guess that a comprehensive renovation would be about $5 million and would likely be a multiyear undertaking.
Valuation
We thought $28.25 million was a ridiculous price in February. Substantially jacking up the price just four months later makes it difficult for us to take the offering seriously. We think the property should trade at a discount to recent Louisburg Square transactions. We see fair market value somewhere under $20 million.
With a big tax bill and a $15.9 million mortgage, the seller would be well advised to take a quick loss and move on.
56 Beacon Street is offered by Compass.
Well Bought/Well Sold
172 Beacon Street, unit 5 – Taking a Loss Was the Right Move – Well Sold
It took nearly a year, but unit 5, a 3,240 square foot 3-bedroom unit at 172 Beacon Street has a new owner. The sale price came in at $3.9 million ($1,203/sf), a far cry from the initial asking price of $4.875 million. Net after fees, the seller took a loss of roughly 13% from what they paid for the unit back in mid-2018.
We highlighted the unit in our note “Great Alternatives to New Developments” as an example of how older dated units are struggling to find buyers in the face of blinged out new developments. Not long ago, units like this would be quickly snapped up at premium prices.
This is a great building in a great Back Bay location, but the unit needs some serious updating. Public records indicate that the principals behind the LLC who bought the unit also recently bought two other units in the Back Bay. Both of those units are now in the rental market, and we suspect that this unit will also be offered for rent.
Financial buyers tend to be stingy when it comes to updating rental apartments, so comprehensive updating probably isn’t in the cards. We think that would be a mistake as we see the discount for estate condition units deepening.
In our March note we pegged fair value at around $1,000/sf, or $3.3 million. The final sale price was higher but not completely unreasonable. At the margin, we think the seller got the better end of the deal and we’re calling it – Well Sold.
31 Chestnut Street – How NOT to Build Generational Wealth, Beacon Hill Style – Well Sold
31 Chestnut Street, an 8,979 square foot 9-bedroom single family home finally sold after roughly two years on the market. The sale price came in at $7.4 million ($824/sf), 29% below the original asking price of $9.995 million.
This is a classic Beacon Hill South Slope house. It has a great view down Spruce Street to the Boston Common and it gets excellent sunlight. Sitting on a 30-foot-wide lot, the house is spacious. The property has been under the same ownership for the last 19 years and is a bit tired. Like a lot of these houses, it’s had a hodgepodge of updates over the decades.
The buyer appears to be a developer who financed the project with a $10 million mortgage. Backing out the purchase price leaves about $2.6 million for the renovation. It’s not clear if the plan is to chop the property up into condominium units or to maintain it as a single family. Either way, you can spruce the place up for $2.6 million but a proper renovation will need a bigger budget.
An Investment Dud - Staggering Opportunity Loss
It’s worth pointing out that the seller paid $6.5 million for the property nineteen years ago. Net after standard fees the proceeds from the sale were roughly $7.1 million. Forgetting the carrying costs, which are substantial (the real estate taxes alone are over $100,000 a year), the gross annualized return was roughly .50%.
For context, in the same time period the Standard & Poor’s 500 index was up about 460%. Had the $6.5 million been invested in the index it would be worth around $36 million today.
The pitch to own residential real estate is often rooted in the idea that it’s the best way to build generational wealth, but if you do the math, you often get a very different story. To be sure, the returns here are measured in memories – and they’re priceless. But as an investment – this was a total dud.
This transaction looks fair to both parties. We think the developer has a good chance to turn a decent profit, we’d say it was – Well Bought.
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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 real estate brokerage.