Michael Dell’s Boston Real Estate Investment Bust
Michael Dell’s Boston Real Estate Investment Bust
Dell’s results reflect the fact that there’s a glut of new downtown Boston luxury condominiums, and as it turns out, the demand isn’t endless.
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Michael Dell’s Boston Real Estate Investment Bust
When Michael Dell invests in a luxury condominium, there’s always a lot of fanfare. Local realtors jump up and down like giddy cheerleaders grandstanding the transaction like it’s a seal of approval - and you can count on a puff piece in the Wall Street Journal. The reality is that Dell’s Boston investments look more like unmitigated disasters.
Dell and the Prince of Darkness
A few months ago, we profiled Dell’s penthouse unit (owned by a trust of which Dell is reportedly the beneficiary) at the Prince of Darkness, aka, the Four Seasons located over on Dalton Street (see “One Dalton Penthouse Whac-A-Mole… The Michael Dell Hoax”). For all the rah-rah that Michael Dell lives in the penthouse, people were surprised to learn that the unit was never built out, it’s raw space. Dell never spent a night in his pricey penthouse.
Dell bought the penthouse in January of 2020 for $34 million and listed it for sale in July of 2023 with an asking price of $35 million. Not surprisingly, there aren’t any takers.
Here’s the math:
1 Dalton Street, unit 6102 is offered by Campion & Company
Dell’s Downtown Crossing Disaster
In the previous newsletter, we pointed out that Dell didn’t really need his digs over at the Prince of Darkness because he also has a fancy penthouse a mile away at 1 Franklin Street in Downtown Crossing. Dell snapped up that unit back in 2016 for $10.9 million and recently put it up for sale at the same price.
It’s not clear if Dell ever spent time in his Downtown Crossing penthouse. Unlike his white elephant over on Dalton Street, this unit is actually habitable with a working kitchen and functioning bathrooms.
Overall, it’s a nice place with big views, but if we were going to drop nearly $11 million on a Boston condominium, it wouldn’t be in Downtown Crossing – to each their own. From an investment perspective, the numbers are smaller than 1 Dalton, but the results are just as dismal.
Here’s the math:
1 Franklin Street, unit PH4B is offered by Gibson Sotheby’s
Tallying the Losses
Assuming Dell gets his full asking price on both properties, he’s looking at $5.24 million in combined losses for his Boston condominiums. We’d place the likelihood of getting full asking price for these units at zero, so the final losses could be substantially higher.
Dell’s opportunity cost is off the charts. He initially invested $44.9 million between the two properties. Had that money been invested in the S&P 500, on a total return basis the investments would have grown to just under $80 million. Keep in mind that we’re not factoring in the substantial cost of lugging these units which is currently about $75,000 a month, or close to $900,000 a year.
Back in my Merrill Lynch days, our Chief Investment Strategist made an important point about non-income generating real estate - if the value of the asset isn’t appreciating, the property takes on the characteristics of a liability. Investors take note.
Dell’s results reflect the fact that there’s a glut of new downtown Boston luxury condominiums, and as it turns out, the demand isn’t endless (see “The 600 – Ready or Not, Here They Come!”). Our advice to the Dell investment team is to cut your losses, you’re past the point of diminishing returns. Get your capital out and get it redeployed in something productive – what are you waiting for?
Property Spotlight
22 Brimmer Street – Great House, but This Isn’t Louisburg Square! – Offered at $16 Million
Our expectations for this house were low. While we like Brimmer Street and the Flat of the Hill in general, this house isn’t on the river side of the street, and we don’t tend to think of this block as super high-end. We were wrong.
The sellers of this 6,000+ square foot four-bedroom single family house are in the development and design business. This has been their primary residence – it’s not a flip. We were impressed with the attention to detail and the quality of finishes; it’s a case of the cobbler’s children having nice shoes.
One of the things that we found appealing about the property is that the original detail was embraced. We’re conditioned to seeing the same color palette over and over, you’ve been in one renovated house, you’ve been in them all. Walking into this house your eyes almost need to adjust – it’s not your cookie cutter high-end house. It’s not freshly renovated, but since they skipped over trendy design elements it doesn’t feel dated.
The house has excellent outdoor space, and an elevator with stops on each floor. Perhaps the best feature is parking for two cars in the rear alley, a rare thing on Beacon Hill. It’s an appealing property.
As for the valuation, that’s a different story. If the seller gets their full asking price, according to MLS data this would be the third highest single family home sale on Beacon Hill (there have been a few off market transactions at higher prices). Is it the third nicest house to hit the market on the Hill? Sorry, but no. Please people, this is the first block of Brimmer, it’s not Louisburg Square or Chestnut Street.
Even if we look at it from a replacement cost perspective and factor in the two-car parking, we think $16 million is still a stretch. The real problem is that most people want the latest design trends which means a comprehensive renovation is probably in the cards. At the asking price, that could push the all-in cost closer to $20 million – we’d advise against that.
We could be wrong on this one, but we see fair value south of $10 million.
22 Brimmer Street is offered by Campion & Company
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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 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.