Maybe the Luxury Real Estate Market Really Is Rigged?
Maybe the Luxury Real Estate Market Really Is Rigged?
One Dalton Penthouse Whac-A-Mole… The Michael Dell Hoax
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Maybe the Luxury Real Estate Market Really Is Rigged?
One Dalton Penthouse Whac-A-Mole… The Michael Dell Hoax
It’s been widely publicized that Michael Dell is a beneficiary of the Trust that owns unit 6102, a 7,557 square foot duplex at One Dalton Street – the new Four Seasons. The Dell Trust bought the unit back in January of 2020 for $34 million ($4,499/sf) and just put it up for sale with an asking price of $35 million ($4,631/sf).
In a recent newsletter, we identified a pattern of transactions that calls into question the possibility that Boston luxury real estate prices could be manipulated (see “Are Real Estate Prices Manipulated?”). We questioned if these transactions were genuinely arm’s length, or if they were “arm in arm” transactions (where the buyer and seller have a relationship).
At the time, we highlighted the Dell Trust transaction because Michael Dell, through his investment firm MSD Capital, is a major investor in several Four Seasons developments. We have no way of knowing if MSD Capital is an investor in the One Dalton development, but that wouldn’t surprise us. Clearly there’s a close relationship between Dell entities and the Four Seasons brand.
The Penthouse Shell Game
There are three penthouse units at One Dalton. According to public records, all three penthouses were offered as “shells,” meaning that buyers need to build out the entire interior. The marketing photos are renderings of what it might look like after it’s built out. Up until recently, public records indicate that the only penthouse unit the developer sold is unit 6102 – the Dell Trust unit, which is now being re-offered for sale.
The marketing material for the Dell Trust unit indicates that it is still a shell. It appears that it was never built out. So, unless Michael Dell brought along a sleeping bag and air mattress, he never spent a night in his pricey Boston penthouse. It wouldn’t surprise us if Dell has never stepped foot in the unit.
Simultaneously with the Dell Trust unit being listed for sale, the developer recorded the sale of one of the other penthouse shells (unit 6101). That unit sold for $30 million ($4,040/sf). This begs the question - is this timing just a coincidence? We think not.
Michael Dell Never Slept Here
It’s clear to us that Michael Dell never intended to live in the penthouse (assuming that he is in fact a beneficiary of the Trust). Dell is said to own a more modest condominium unit at 1 Franklin Street in Downtown Crossing which he picked up in 2016 for $10.9 million.
It’s possible that the One Dalton unit was bought for investment purposes, although we highly doubt that someone as smart at Michael Dell would fall into the trap of flipping condominium units. Even if the Dell Trust gets their full $35 million asking price, backing out three and a half years of carrying costs (roughly $2.4 million in condominium fees and taxes) plus another $1.4 million for a sales commission and $159,000 transfer tax, you’d be far short of your $34 million cost. Close to $3 million short.
The fact that a nearly identical unit just sold for $30 million ($4,040/sf) doesn’t help matters. Keep in mind that these are just shells. The sky is the limit when it comes to the cost of finishing these units. You could start your budget thinking at around $700/sf, or $5 million.
The Halo Effect
So, what’s really going on here? In our opinion, given the Dell relationship with the Four Seasons brand, this smells more like an arm-in-arm transaction. We’d venture to guess that there’s some sort of a side pocket deal between the developer and the Dell Trust.
Developers don’t disclose the identity of buyers, but it’s clear to us that someone wanted the world to know about this transaction. High profile people buy and sell very expensive real estate in Boston all the time and their transactions don’t get splashed all over the gossip pages. News of Dell’s intention to purchase the unit was leaked to the media back in 2017, years before the Trust bought the property.
When developers look to get $3,000 - $4,000+ a square foot for apartments, they’re in the business of selling sizzle, not steak. If the marketplace believes that a high-profile tycoon is actually living in the penthouse (even just part time), it supports their narrative that “this is a big money building” – and tycoon wannabes line up with their checkbooks.
Premium luxury real estate values rely heavily, almost entirely, on marketplace perception. The pre-market pricing for the penthouses at One Dalton was widely reported to be $40 million. Apparently, they had no takers at those prices. To us it looks like the Dell halo was intended to put a floor under the penthouse valuations, create the illusion of demand, attract buyers, and get premium pricing. Some may go as far as to say that this is a form of market manipulation.
Limited Time Offer - 100% Fee Discount!
If you’ve been eyeing a fancy penthouse shell over in the Symphony Hall area, it looks like you still have two to pick from. With real estate taxes and condominium fees pushing $700,000/year for these units, the sellers are clearly at the point of diminishing returns and ready to make deals. You should be able to name your price. Give us a call, we will waive 100% of our fee to help you get the deal done!
Unit 6102 at 1 Dalton Street is offered by Campion & Company.
What is a Penthouse?
While we’re on the topic of penthouses, one of our pet peeves is when we get in the elevator of a relatively new building and the top several floors are all identified as penthouses. Just to be clear, a penthouse apartment is on the top floor of the building, or in the case of One Dalton, the top two floors as these are duplex units.
In recent years, the marketing folks have come up with terms like “sub-penthouses” and “penthouse flats.” Auto retailer Herb Chambers bought one of the One Dalton penthouse flats on the 59th floor and was profiled in a Wall Street Journal article “A View from the (Almost) Top.”
These terms are marketing gimmicks designed to squeeze premium pricing out of buyers. We’re confident that Herb’s apartment is stunning, but if someone lives above you, you’re not in the penthouse – sorry Herb.
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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.