Great Alternatives to New Developments
Great Alternatives to New Developments
We’re highlighting what we see as three attractive traditional apartments that are currently on the market. There are a variety of reasons that these units haven’t sold, but the bottom line is that the asking prices are unreasonable in the context of today’s market. While we’re focusing on just three units, the following points apply to a broad swath of the downtown market.
First and foremost, sellers of these properties have not accepted the fact that the glut of luxury new developments has permanently altered the downtown Boston supply and demand dynamic. This has a meaningful negative impact on the value of their properties.
This problem is greatly compounded by brokers and sales agents who often mismanage sellers’ expectations in the sales process when securing listings. Even the best brokers will lead their clients into this trap as they are caught up in a minefield of conflicts of interest.
Secondly, these properties are in what we consider to be estate-condition. They need updating, some more than others. Renovating high-end properties in antiquated urban buildings is tended to with risk – time, money, and loads of patience.
Most buyers at these price points have lived through renovation projects. They understand the headaches involved and generally have no interest in taking on a project. This eliminates a big chunk of the buyer pool. When buyers are out touring brand new luxury developments, it magnifies how dated these units are.
Finally, higher interest rates hurt asset values - this is a basic law of economics. Residential real estate doesn’t have immunity from this rule. We don’t profess to know precisely where interest rates are going, but we continue to expect them to remain elevated.
Conclusion – it’s a buyer’s market, particularly with respect to these traditional estate-condition units. We firmly believe that when properly renovated, these units are far superior and represent better value than what you’ll find in any of the new glass-clad towers.
Square footage is one example of why we see traditional apartments as more appealing. In the last 12 months, 24 units larger than 3,000 square feet have sold in the Back Bay and Beacon Hill. Good luck finding a unit with more than 3,000 sf in the Seaport – they basically don’t exist. In the last 18 months only one unit in excess of 3,000 sf sold in the Seaport, and some poor soul shelled out $3,730/sf for it.
The trick is getting the purchase price right and not creating a white elephant in the renovation process. That’s where we can help. Feel free to contact us for a valuation analysis and preliminary renovation guidance.
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.
81 Beacon Street, unit 4 – Good Enough for Joe Kennedy – $7.25 Million ($2,197/sf)
DOM – 182, Taxes N/A, Co-Op Fee - $4,647/month
This 3,300 square foot 4-bedroom floor-through cooperative apartment comes with one parking space at the Brimmer Street Garage. Located on the north side of the Public Garden, the apartment gets great sunlight all day.
81 Beacon has always been a bellwether luxury property; back in 1952 Joe Kennedy set up shop there while overseeing JFK’s Senate campaign. The building is staffed with a concierge and a live-in superintendent.
While we prefer cooperative apartments over condominiums (see "Cooperative Apartments - Why We Love Them"), many people are turned off by that ownership structure, which reduces the buyer pool. In cities like New York, where co-ops are more common, it’s well accepted that co-ops trade at a discount to condominiums. Boston co-op buyers should demand the same.
Of the three units we’re highlighting, this one needs the least amount of work. The kitchen has been nicely updated, but aspects of the unit still feel very dated (nothing screams the 1980s like a black toilet). The good news is that cosmetic updating projects shouldn’t take long, but they can still be pricey.
If we strip out the value of the Brimmer Street parking, the asking price is still well over $2,000/sf (yes, parking spaces at Brimmer trade for nearly a half a million dollars). If the economy doesn’t go to hell in a handbasket, we’d peg current fair value about $1,500/sf, with parking that implies a price of around $5.45 million.
Unit 4 at 81 Beacon Street is offered by Campion & Company.
172 Beacon Street, unit 5 – Classic Pre-War – $4.4 Million ($1,358/sf)
DOM – 201, Taxes $46,874, Condominium Fee - $3,232/month
This 3,240 square foot 3-bedroom condominium unit is begging for a comprehensive renovation. The unit, which comes with one parking space, last sold in mid-2018 for $4.225 million.
This is a perfect example of how the Boston luxury market has changed. $4.225 million may have been reasonable in 2018 – today, not so much. A long-term renovation project doesn’t have much appeal when you’re getting the sales pitch over at Raffles.
The seller recently brought in a new sales agent and did some painting and staged the unit. News flash – painting a unit like this is throwing good money after bad. The problem wasn’t the previous sales agent or the dated wallpaper – it’s the price. The cost of properly renovating these units is substantial and not for the faint of heart.
There’s a clearing price for everything, and we see the clearing price here closer to $1,000/sf. If you can keep the renovation budget around $500/sf, you’d be into the unit for about $1,500/sf. That would put you ahead of the game. Keep in mind that a project like this could take 18 months and test your patience, so you deserve to be ahead of the game.
This is a great building in a prime location, but we think a comprehensive renovation is needed. Post renovation, this would be a very attractive and far more liquid property. We see as-is fair value at about $3.3 million.
Unit 5 at 172 Beacon Street is offered by Douglas Elliman.
380 Beacon Street, unit 1 – A Traditional Blue-Chip Apartment – $3.8 million ($1,333/sf)
DOM – 153, Taxes N/A, Co-Op Fee - $5,077/month
Readers of our work know that we consider Beacon Court, a pre-war four building complex at 360-380 Beacon to be one of the most desirable properties in Boston. Unit 1, a 2,849 square foot 3-bedroom cooperative apartment comes with one parking space. Not included in the square footage are three large lower-level storage rooms, one of which has been used as an office and has a full bathroom.
What distinguishes this apartment from the other two that we’re highlighting is the higher ceilings which gives it more of a spacious feel. The layout of Beacon Court provides for exposures on three sides, so the unit gets good natural light.
A comprehensive renovation, including updating the HVAC, is in order here. Assuming you can live with the floor plan you should be able to keep a lid on the renovation cost. The trick to these renovations is being disciplined without cutting corners. It’s always glaringly obvious in re-sales where corners have been cut in renovations.
Prior to the current Boston luxury building boom, these apartments were highly coveted and sold quickly. When the new car smell dissipates at the nouveau glass towers, we expect a resurgence in demand for properties like Beacon Court. We think $1,100/sf or around $3.1 million is a fair value.
Unit 1 at 380 Beacon Street is offered by Gibson Sotheby’s.
Well Bought/Well Sold
109 Commonwealth Ave., unit 7 – Nice Property, Wrong Price – Well Sold
It took just 12 days on the market for unit 7, a 4,140 square foot 3-bedroom penthouse level unit at 109 Commonwealth Ave. to find a new owner. The sale price came in at $9.75 million ($2,355/sf) off an asking price of $10.25 million.
109 commonwealth abuts the Clarendon Street playground. When the City opened the playground in the 1970s, 109 Commonwealth became an “end-of-block” building. This paved the way for the installation of east facing windows that let in a ton of natural light and overlook the playground.
We didn’t have a chance to see the unit, but it’s clear that it’s pretty much as it sat when the seller bought it back in 2008. The decorative columns in the living room are a dead giveaway that updates are needed. We’d say that this unit fits the profile of the estate condition units described above.
$2,355/sf would be a stretch in our book even if the unit was nicely renovated. In the Back Bay, we’d expect more than one parking space when you’re spending nearly $10.0 million. This was a designated agency transaction and that probably explains the steep price, it was – Well Sold.
56 Beacon St. – A $28.25 Million Beacon Hill Flex – Well Sold
In an off-market blockbuster deal, 56 Beacon Street, a 9,559 square foot, 6-bedroom single family home changed hands for a whopping $28.5 million ($2,955/sf). The property last sold in June of 2015 for a more reasonable $11.5 million after sitting on the market for 1,447 days.
Just to get it out of the way, this is a great property. It’s one of the few remaining Beacon Street single family homes facing the Boston Common. As a bonus, the property has a four-car garage at the rear of the lot, off Branch Street.
Is it $28.25 million nice? We think not. Just for a little valuation context, according to MLS records, in the last 20 years only 22 single family homes in Boston have fetched north of $10.0 million, with only two sales above $15.0 million (one for $15.0 million and one for $15.12 million). There have been a few under the radar deals at slightly higher prices, but nothing remotely close to this.
Here’s the takeaway. If you’re in the market for a downtown single-family home and your sales agent even mentions this transaction to justify another overpriced property – run, don’t walk away. This is an outlier transaction, and it has no bearing on current valuations.
It didn’t escape our notice that the buyer took a $15.9 million mortgage at 4 ¾%. That implies a monthly mortgage payment of about $82,000 and you can tack on another $25,000 a month in property taxes once the taxman catches up to this sale.
We’re amused by a good old fashion financial flex, and we generally give buyers of trophy properties the benefit of the doubt. 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, it was – Well Sold.
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.