The Four Story Limit
The Four Story Limit
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The Four Story Limit
“There Is Abundant Evidence to Show that High Buildings Make People Crazy.”
Property Spotlight – On the Market
771 Harrison Ave., 25 units – New Development Fire Sale? – Offered at $32.5 Million ($664/sf)
Well Bought/Well Sold
42 Irving Street – A Great House and Fair Deal – Well Bought
400 Stuart St., unit PH1 – Investor Snaps Up Copley Square Penthouse – Well Sold
The Four Story Limit
The book “A Pattern Language – Towns, Building, Construction,” by Christopher Alexander, et al can be found on the book shelves of most architects – it’s kind of an architects’ bible. Published in 1977, this 1,200 page book is a catalog of 253 rules, or what the authors call “patterns.” The patterns cover everything from why rooms should have natural light sources on two sides to why trim shouldn’t exceed a half-inch.
We’re particularly interested in Pattern 21, the “Four-Story Limit,” where Alexander lays out his case to never live above the fourth floor of a building. It’s safe to say that Alexander doesn’t think that “high buildings” have any redeeming qualities. He states that they’re expensive to maintain, damage light, air, and views, promote crime, and he cites “abundant evidence to show that high buildings make people crazy.”
"The Building Becomes a World of its Own"
Highlighting several studies, Alexander explains that living above the fourth floor creates too much separation with the outside world, leading to isolation. “The visual detail is lost; people speak of the scene below as if it were a game, from which they are completely detached.” The studies suggest that elevators are barriers and that “negotiating the vertical journey” to the public world is too formal and awkward causing people to stay home – “the building becomes a world of its own.”
It may be tempting to dismiss Alexander as a quack, but he was highly respected in the world of architecture and urban planning. Alexander earned a bachelors degree in architecture and a masters degree in mathematics at Trinity College, Cambridge University. He went on to become a senior fellow at Harvard where he was awarded the school’s first Phd in architecture.
Buyers Should Pay Heed
We don’t think that living above the fourth floor makes you ready for the loony bin, however Alexander raises some valid points. Even if only temporarily, people fled urban living in droves at the height of the pandemic for mental health reasons. Buyers contemplating high rise living should pay heed to Alexander’s warnings (including, but not limited to, mental health issues).
Yours truly lives in a 37 story building, but I’m happy to report that we live on the third floor. Who would have thought that the lower levels are the most desirable? I’ll need to remind myself of that the next time there’s a street fight at 2:00 am outside our bedroom window.
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.
771 Harrison Ave., 25 units – New Development Fire Sale? – Offered at $32.5 Million ($664/sf)
The developer of the Cosmopolitan, a struggling 63 unit redevelopment at 771 Harrison Avenue in the South End, has tried every trick in the book to sell these dogs. They’ve offered huge commission incentives to sales agents and slashed prices, but they’re still stuck with about 25 unsold units.
One of the unsold units (PH7) was originally offered at $4.656 million ($1,497/sf) in July of 2020. By the spring of 2022 the asking price had dropped by 46% to $2.495 million ($802/sf). Last October, the developer offered the 25 unsold units (with 15 parking spaces) as a package for $37.5 million. Last week the package price was slashed to $32.5 million.
By our calculation, the average asking price per square foot for the bundle of 25 units is now $664/sf. According to the marketing materials, the 25 units could expect to generate about $1.1 million a year in net operating income if they are all successfully rented. That would imply a cap-rate of roughly 3.5%.
Is 3.5% the Right Price?
Investors get paid to take risk, and by our way of thinking 3.5% doesn’t adequately compensate investors. Based on our quick look at the financials, the planets and stars need to line up perfectly to get your 3.5%. It can’t be ignored that as we write this, the yield on a 5-year Treasury Note is 3.72% (yes, we understand re-investment risk).
We see a ton of operational risk in buying the package, but if you think real estate values on Harrison Avenue are going higher, and you can handle having 25 tenants, this is starting to get interesting. Obviously a transaction like this would involve intense due diligence and it would be a mistake to rely only on the marketing materials.
Developers Getting Squeezed
Is this a distressed situation? It seems that way. It’s probably safe to say that when this project was first conceived it was never contemplated that the developer would still be lugging all of these unsold units at this point.
This situation isn’t unique to the Cosmopolitan. Downtown developers have loads of unsold inventory to move and they’re desperate to make deals. The punch line is that if you’re in the market for new construction, don’t let anyone tell you that it’s not a buyers’ market.
771 Harrison Avenue units are offered by Compass.
Well Bought/Well Sold
42 Irving Street – A Great House and Fair Deal – Well Bought
42 Irving Street, a 2,000 square foot, 4 bedroom single family sold this week for $3.25 million ($1,622/sf). The house, which was just completely renovated, has a great roof deck and a self-contained lower level. The lower level is ideal for live-in domestic help, in-laws, or teenagers looking for more independence with things like curfews.
What’s appealing about this house is the extent of the renovation work. All too often we see properties marketed as “fully renovated” when in reality the seller just got new kitchen appliances and painted the old cabinets.
The seller here intended to live in this property, so it isn’t your typical “lipstick on a pig” flip. This program involved fixing drainage issues, all new windows, roofing, pointing, and other structural work - the kinds of things that typical developers skimp on.
$1,622/sf is big money for a north slope Beacon Hill house, but smaller single family houses in great condition on the Hill trade at premiums. The buyer got a brand new house without having to suffer through two years of construction. We’re calling it – Well Bought.
400 Stuart St., unit PH1 – Investor Snaps Up Copley Square Penthouse – Well Sold
A Newton-based LLC snapped up unit PH1, a 3,545 square foot 4 bedroom on the 31st floor at 400 Stuart Street for $9.25 million ($2,609/sf) after just two days on the market. The unit comes with two valet parking spaces and an enormous private terrace.
It appears that the unit was bought as an investment. It was immediately rented for $35,000/month after it went into contract, well before last week’s closing. At $35,000/month the implied cap-rate is about 2.5% which is underwhelming in today’s market. As a general rule, these types of high priced rentals don’t attract long term tenants, which leads to turnover and higher vacancy expenses.
We’ve previously written about the three penthouse units at 400 Stuart Street (see "The $10 Million+ Condominium Club") - the bottom line is that we like them. Having 360 degree views in Copley Square is pretty special. The problem we see relates to the high winds that ricochet off the John Hancock Tower (we still call it the JH tower). The Boston Globe has crowned this the windiest corner in the city. People reportedly have moved because the winds are so unbearable at times.
This is a record high price for 400 Stuart Street, which isn’t surprising as it’s arguably the nicest unit in the building. We love the outdoor space, but if the winds on the 31st floor are half as bad as they are at the street level, the terrace wouldn’t be enjoyable. As an investment this would be a hard pass for us, the math just doesn’t work. The sale price is more or less market correct, but at the margin we think that the seller got the better end of the deal, we’re calling it – Well Sold.
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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.