Now They Tell Us! -“Market Rules to Remember”
Now They Tell Us! -“Market Rules to Remember”
Batterymarch Insider
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This Week:
Now They Tell Us! -“Market Rules to Remember”
“Rule 4 – Exponentially rising or falling markets usually go further then you think, but they do not correct by going sideways.”
Property Spotlight – On the Market
287 Commonwealth Ave., unit 4 – A Compelling Back Bay Value Play – Offered at $6.3 Million ($1,197/sf)
Well Bought/Well Sold
135 Commonwealth Ave., unit PH – Fourth Floor Walk Up, No Thanks – Well Sold
71 Mount Vernon St. – A Shrewd Beacon Hill Deal – Well Bought
Now They Tell Us! -“Market Rules to Remember”
The principal broker of one of the large Boston-based real estate firms described the state of market in an opinion piece in Banker & Tradesman as, “The market is merely “stabilizing” from its previous frenzied levels – a positive sign, because the red-hot market was neither healthy nor sustainable.”
Huh? Wasn’t it just a few weeks ago that the large firms were lecturing home buyers on “how to win a bidding war”? And what suddenly happened to the shortage of housing that we’ve heard so much about?
As advisors, we’ve been counseling clients to maintain a value centric approach in the face of higher interest rates and what we see as a glut of new downtown developments (see “2022 Market Outlook, Can the Goldilocks Market Continue?” and “The 600 – Ready or Not, Here They Come”). In our January “Year Ahead” piece, we cautioned that higher interest rates and the spill over into financial asset weakness would be a headwind for real estate values.
The notion that the market is “merely stabilizing” brings to mind one of the late Bob Farrell’s “Market Rules To Remember.” (Bob was a former Merrill Lynch colleague and considered by many to be the Dean of Wall Street research.)
Rule 4 – Exponentially rising or falling markets usually go further then you think, but they do not correct by going sideways.
Like all interest rate sensitive assets, real estate values have an inverse relationship with interest rates. There’s no denying that artificially low interest rates sparked the frenzied red-hot market. Conversely, sustained higher interest rates will put pressure on real estate values – it’s a law of economics.
It would be naïve to expect a transactional broker or their sales agents to throw a flag on the field if they thought that the red hot market was unsustainable. To the contrary, they’ll look the other way and gladly collect their commission checks – it’s the nature of what they do, they’re in it for the transaction.
As real estate advisors, we’re cut from a very different cloth. We adhere to our Fiduciary Principles and put our clients’ interests ahead of our own. If you’re in the market for downtown real estate, fell free to give us a call. If nothing else, we’ll give you a good sense of what you’re up against as you navigate the murky waters of downtown real estate brokerage.
Property Spotlight
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.
287 Commonwealth Ave., unit 4 – A Compelling Back Bay Value Play – Offered at $6.3 Million ($1,197/sf)
Unit 4 at 287 Commonwealth Ave., a 6 bedroom 5,263 square foot “Philly duplex” with three parking spaces has been on the market for about a year. The unit was originally listed for $7.5 million, today it was re-listed at $6.3 million, a 16% price reduction.
The market for 5,200 square foot 6 bedroom apartments in the Back Bay is pretty thin. The play here is to divide the property into two units. The layout of the units makes this an easy division. The end result would leave you with two far more liquid units. Sell one and enjoy the other. The trader in us has a high level of conviction that the sum of the parts is greater than the whole.
The risk is that not everyone wants to be that far down Comm Ave, and tackling a project like this isn’t for the faint of heart. Obviously a purchase offer would need to be contingent on condominium board approval. As we see it, at under $1,200/sf for a very nice unit in a premium building on Comm Ave with plenty of parking – it looks pretty compelling.
Unit 4 at 287 Commonwealth Avenue is offered by Coldwell Banker.
Well Bought/Well Sold
135 Commonwealth Ave., unit PH – Fourth Floor Walk Up, No Thanks – Well Sold
The penthouse at 135 Commonwealth Ave, a 3,519 square foot four bedroom duplex finally found a new owner after kicking around the market for over a year. The sale price came in at $5.7 million ($1,620/sf), a 27% discount from the ludicrous original asking price of $7.5 million.
At first blush, it’s a pretty attractive unit. The location is great and it’s on the desirable sunny side of Commonwealth Ave. It comes with two parking spaces and it has a 1,500 square foot private roof deck.
So what’s not to love? Stairs. Shelling out that kind of money for a fourth floor walk up isn’t very appealing to most people. In fact, for the majority of Back Bay buyers it’s a total deal killer as aging in place is completely out of the question.
The sales material stated that “there was no expense spared” in the renovation. We take issue with that. The HVAC system consists of radiators and wall mounted “mini-splits.” Mini-splits are the indoor equivalent of ugly, noisy window air conditioner units – they’re an eye sore and you can forget about central humidification during the dry winter months.
With respect to valuation, if you can live with the stairs we’d say that $1,620/sf is probably market correct. An added bonus for the new owner is that, with all that schlepping up and down the stairs, they can go ahead and cancel their Equinox gym membership. Selling this unit down the road will always be problematic, for that reason we’re calling it – Well Sold.
71 Mount Vernon St. – A Shrewd Beacon Hill Deal – Well Bought
In our spring inventory edition, we highlighted the upper unit at 71 Mount Vernon Street, which is effectively a two unit building. We concluded that someone needed to snap it up before it fell into the hands of a developer. As it turns out, it looks like a developer saw the value.
The upper unit, which was listed for $4.8 million, traded for $3.9 million ($1,002/sf), but the story doesn’t end there. The developer also acquired the lower level unit, which had been tied up in an estate, for $1.9 million. In essence the developer was able to buy the entire 5,669 square foot building for $5.8 million or $1,023/sf.
It’s not clear if the new owner will convert the property back to single family use or sell condominium units. This was a 1975 condominium conversion and the upper unit was occupied by the original owner, so one thing is clear - it will take a pile of money to bring the property up to snuff.
It remains to be seen if flipping the property will prove to be financially rewarding. The new owner took an $8.7 million loan to finance the project; that implies that they expect to be into the property for about $1,535/sf. If they can stick to that number, the project should pay.
In the perfect world, an end user would have bought the property and renovated it for their own use. These kinds of projects can be challenging, but the end result is almost always very rewarding. Someone made a shrewd deal here, 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.