The Batterymarch Insider
In this issue:
Investors dumping condominium units
New Four Seasons - no takers, bad omen for new developments
288 Commonwealth Ave, PH - It's not the broker, it's the price
315 Commonwealth - $9.0 million shell, we see value - Well Bought
2 Commonwealth Ave., unit 11C - $10.5 million condo, did they negotiate? - Well Sold
What’s Catching Our Eye
Inventories in Boston remain stubbornly high. Year-over-year, the supply of Back Bay condominiums is up 111% (as measured in months of inventory). At the same time, Back Bay condominium units sold are down 27%. The urban real estate story remains unchanged, increased supply being met with muted demand.
One emerging trend on our radar relates to investor-owned condominium units. The rental market has been particularly hard hit in recent months. There are currently well over 1,000 downtown vacant apartments listed in the MLS system, which doesn’t include many of the large nationally owned rental properties that utilize in-house leasing teams.
As taxes, condominium fees, and other carrying expenses mount, some of these investors are capitulating and offering the units for sale. We’re keeping an eye on this trend and will be publishing a report looking at the economics of these investments in the coming weeks.
We’d call your attention to our report this week titled “You’re Not getting Paid to Think,” which shines a light on the illusion of fiduciary duty in real estate sales. See the report here.
One Dalton – What’s Going on at the “New” Four Seasons? Not Much
Sitting on the outskirts of the Back Bay is One Dalton, home of Boston’s second Four Seasons Hotel and private residences. It’s a 61 story new 160 unit development (completed in 2019) that came on to the Boston real estate scene with much fanfare. It’s been widely reported that Michael Dell snapped up a penthouse unit which was being offered at $40 million.
Developers are generally tight lipped when it comes to how many units have been sold and remain unsold. To that end, they avoid listing units for sale in the MLS system, instead relying on independent marketing. The developer’s web site indicates that there are still plenty of new units available for sale.
About four months ago, a handful of units started appearing in MLS. This week, the price of unit 2904, a 1,357 sf 2 bedroom, 2.5 bathroom was reduced by 4.5%, it’s now offered at $3,300,000 ($2,431/sf). This prompted us to take a closer look at the One Dalton MLS activity. Of the seven units that have been listed in MLS over the last several months, there hasn’t been a single sale. Yes, it’s been a tough market, but this doesn’t bode particularly well for all of the other luxury developments in the pipeline.
288 Commonwealth, PH – Not Selling - New Broker or Lower Price?
The tale of 288 Commonwealth is a common one. The building was bought in 1991 for $415,000 and operated as a 5 unit apartment house. In 2015, the property was put up for sale for $6,200,000. In an apparent bidding war a developer bought the building for $6,518,000 and subsequently got permission to convert the property into two units.
In early 2017, the developer flipped the property to a second developer for $7,779,325 (nice trade). The second developer in turn received permission to convert the property into three condominium units. The smallest of the three units (1,380 sf 2 bed, 2 bath) sold for $2,580,000 in the fall of 2018. The second unit looks like it was never marketed, but the 3,750 square foot penthouse triplex has become a member of the Back Bay long haul inventory club.
Originally listed for $8,750,000 in mid 2018, the unit was under agreement twice but never sold. In a unique marketing move, in December of 2019 the price was raised a couple of hundred thousand dollars, to $8,955,000 ($2,398/sf). After a total of 303 days on the market, the developer did what many frustrated sellers do - bring in a new broker, at the same price.
This is a fine unit, we showed it to a client early in the marketing. One of the deal breakers for our client was the fact that the neighboring building has a window right on the “private” outdoor space. Also, the reality is that the demographic target for these large, high priced units tends to shy away from stairs, and this unit is a triplex which can be a liquidity headwind.
In our view, a lower price here would probably prove much far more effective than a new broker.
315 Commonwealth – Well Bought
The seller at 315 Commonwealth acquired the property by buying all seven condominium units in May of 2019 for $8,267,000 (the asking price was $6,800,000 – well sold in 2019) and proceeded to totally gut the building, apparently with the plan of converting it back to a single family. For reasons that aren’t entirely clear, they ditched the project and offered the shell of the building for sale in June of this year for $9,995,000.
Last week the property changed hands for $9,000,000. It could be argued that $1,000+/sf is all the money for a shell of a building, but the costs and headaches associated with demolition and permitting shouldn’t be underestimated. The buyer here has a clean canvas and many options as to how to reconfigure the property and has at least a 12 month jump on the project, we see value here. We’re calling this one – Well Bought.
2 Commonwealth Avenue unit 11C – Well Sold
Several weeks ago we highlighted the fact that despite all the doom and gloom in the urban housing market, this unit went under agreement in just 15 days. The sale closed this week at $10,500,000 (asking price $10,750,000). Our knee jerk reaction was, “did they even try to negotiate?”
The fact is that this is a very sought after location. According to MLS data, there have been only five sales in this 53 unit building in the past three years and the units tend to sell fairly quickly. At slightly over $2,700/sf foot, this is a premium to recent sales in the building (it’s actually two units combined which may warrant a premium), and the unit is in need of updating. We’re calling this one - Well Sold.