Real Estate Insider Trading – Yup, It’s a Thing!
Well Bought/Well Sold...
The Batterymarch Insider
Well Bought/Well Sold
One Franklin Street, unit PH1D – Real Estate Insider Trading – Yup, It’s a Thing! – Well Sold
On Wall Street, people tend to think of insider trading as something nefarious - Ivan Boesky kind of stuff. The reality is, if you follow the rules, insider trading it completely legitimate. Some investors closely track insider trading activity, looking for patterns that may give hints as to future stock price direction. What about real estate? Is there such a thing as insider trading in residential real estate? As it turns out – yes, it’s a thing.
We scrutinize real estate transactions in the downtown Boston luxury corridor looking for insight into market behavior. The sale of unit PH1D at 1 Franklin Street recently grabbed our attention. At first glance, it looked like just another disappointing Downtown Crossing result, then we dug a bit deeper.
Unit PH1D is a 2,198 square foot 3-bedroom unit on the 56th floor that comes with two self-parking spaces. If you’ve lived in one of these buildings, you’re painfully aware of how coveted self-parking is. Originally offered at $4.495 million ($2,045/sf), the unit sold after four months on the market for $3.687 million, net after standard fees that works out to about $1,593/sf.
Curious, we looked in to how much the seller, a Weston, Massachusetts based Limited Liability Company (LLC) originally paid for the unit. We were surprised to discover that the LLC paid just one dollar back in late 2017. While it’s not uncommon for deeds to transfer at a nominal price when the buyer and the seller are related parties, that didn’t seem to be the case here. The developer, Millennium Partners, sold the unit directly to the LLC for a buck.
Upon closer investigation, they are related parties. The sole member of the LLC is a senior managing partner of Millennium Partners. While it’s not important to our analysis, we’d assume that this must be related to a compensation program. Two things are relevant, first is the fact that the seller is a high-level Millennium Partners insider, and second, the price he received for the unit.
One Franklin – Prices Down 30%?
Back in 2016/17, when sold as new, the average selling price per square foot for similar units at 1 Franklin (PH1A, 1B, 1C, and 1F) was $2,254/sf. The sale price of unit PH1D implies a decline in value of roughly 30% in just eight years – ouch.
We’ve been sounding the alarm bell for some time about the glut of pricey new downtown condominiums. It’s becoming increasingly impossible to ignore the cracks in the luxury foundation.
The developer at the St. Regis has resorted to auctioning units. Over on Avery Street, an older Millennium Partners development and operating under the Ritz Carlton flag, sellers struggle to get $1,000/sf. Yet people continue to shell out $3,000 - $4,000+/sf for units in brand new glass clad developments.
By our calculations, over at Millennium’s latest project, the 317-unit Winthrop Center development (located just two blocks away from 1 Federal Street), they’ve only sold about 15% of the units. If we were a member of senior management at Millennium looking at those dismal results, we’d also be a seller.
As for unit PH1D valuation, $1,593/sf (net) for a nice penthouse with premium two car parking seems like good value. However, in our experience, being on the other side of a trade with an insider in a declining market is tended to with a high degree of risk. We’re calling this one – Well Sold.
8 Byron Street – Irrational Exuberance - A Beacon Hill Heist? – Well Sold
8 Byron Street, a 2,720 square foot, 4-bedroom single family on the flat of Beacon Hill found a new owner, or maybe better described as a victim. The final sale price came in at an eye opening $5.85 million off an asking price of $5.65 million and just two days on the market. Several sources with knowledge of the transaction have confirmed to us that this was not a bidding war – go figure.
Byron Street is a private way that runs between Brimmer and River Street, parallel to Beacon Street. The street is largely made up of old stables and carriage houses that served the grand houses on the south slope of the Hill. It’s a great location and the carriage houses have a lot of character.
8 Byron Street last sold in early 2021 for $3.875 million after a few price reductions and sitting on the market for nearly six months. Some may argue that the ’21 price reflected a covid discount, but the small single-family home market remained very healthy throughout the pandemic. This sale is a whopping 51% over the previous sale just over 18 months earlier (note, as far as we can tell, no meaningful improvements were made to the property).
We Love Old Carriage Houses, But One Exterior Window?
Conceptually this is a cool house, and we do see the appeal, but it may not be for everyone. Shockingly the house has just one operating exterior window located in a secondary bedroom. All the other windows open to the interior courtyard, which could be described as an oversized airshaft or lightwell.
One of our pet peeves is when rooms without windows are marketed as bedrooms. It’s well settled that sleeping quarters require a window, which also serve as a secondary means of egress. In fact, Massachusetts Sanitary Code requires at least one window in all rooms except for smaller kitchens. So, the third upstairs bedroom is effectively a large closet.
At 9 ½ feet by just over 8 feet, the lower level “fourth” bedroom is ridiculously small, it may work as an office, but it’s a stretch to consider it a functional bedroom at this price point. At the risk of being overly picky, City records indicate that the living area is 2,574 sf, not 2,720, granted a small, but meaningful difference.
There are endless reasons that someone would sell their property after just a year and a half of ownership. Sometimes it relates to issues with the property. We struggle with the lack of exterior windows. In his book, “A Pattern Language,” famed architect Christopher Alexander cautioned against the negative effects of being cut off from the outside world.
At $2,151/sf the sale represents a 48% premium to similar single-family home sales on Beacon Hill. We are all for free markets, and we recognize that Massachusetts is a buyer beware state. We can’t help but wonder if there is a point that buyer beware collides with a broker’s duty to deal fairly with the public? The seller here made out like a bandit on this one, it was – Well Sold.
About Batterymarch Group LLC – Batterymarch Group is an independent real estate 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.