Sep. 15, 2009 - loft developer in default at 654 Broadway

crunched by numbers
Not a pretty story reported in The Real Deal (last Friday, on line) about a Manhattan loft developer default, CIT Group sues for $12M at Noho condo site. I don't have a lot of any experience running numbers on a development project, but this seems like it was a tough needle to thread even when it was fresh.

It appears that the six-story building had been upstairs rentals (vacant?) when purchased by the developer in August 2007 for $12.6mm. August 2007 ... probably within 6 months of the tippy-top of The Market. Plan was to create five full-floor condo residential lofts and one commercial unit at street level. The building is awfully long, at 29 x 123 ft, and is shorter than both its neighbors along Broadway (i.e., not so narrow but very long, with no side windows). The only unit that I see that was ever marketed was the fifth floor, listed as "2,540 sq ft". That unit was offered at $2.95mm in a fully done condition ("the ultimate in downtown living ... and hi-end finishes throughout") from February into August; the listing has expired.

Using 2,500 sq ft per floor, that is 12,500 sq ft for the five residential lofts to have been developed; maybe the developer could have done them for $150/ft. That's nearly $2mm in construction costs for the five residential units. They did not sell #5 for $2.95mm, so the top of the resale recoupment is something south of $15mm. Maybe the plan here was to break even on the residential units and make dough on the commercial unit....

I have no idea what the value of a commercial condo is along this stretch of Broadway, but I suspect that it may have more value for cash flow (renting it out) than selling it. The coop next door at 652 Broadway has always had absurdly low maintenance because they own the store front: they generate nearly all of that building's operating costs from the rental stream. (The full-floor #2 at 652 Broadway was marketed in 2006 and 2007 as "3,300 sq ft" of raw space [I think it had been a sweat shop], with maintenance of only $548/mo -- barely 20 cents per foot.)

coincidence?
That raw 2d floor had been marketed since March 2006 and closed in December 2007 at $2.2mm, $667/ft. 654 Broadway Partners LLC closed on their purchase in August 2007 at $800/ft (using 2.500 sq ft per floor). It's gotta be the commercial income stream that made this (appear to) make sense, right??

In the event, no sense was made .... Somebody needs to re-set the sunk costs for this building to be developed. (I am pretty sure the retail tenant has been paying all along, but that is a wee small flow of cash.)


© Sandy Mattingly 2009

Sep. 14, 2009 - nice price at 40 West 24 Street? (consider the renovation)

Stage One review
When I saw that the "2,000 sq ft" Manhattan loft #9E at 40 West 20 Street closed on September 2 for $1.64mm and that the "2,000 sq ft" #8N closed for $1.7mm on January 30, 2008 I was intrigued. That #8N closing was pretty close to the calendar peak for all Manhattan, yet #9E cleared only 3.5% off....

Stage Two explains
Even with the full wind of the late 2007 market behind it, #8N took a while to sell. It was first offered in December 2006 at $1.895mm but took one change in firms and one price change to $1.795mm to find a contract in December 2007 -- a full 49 weeks to contract. Billed as "an incredible value", it was either in "move in" condition or was a bit of a project ("bring your architect and design the loft you've always dreamed of"). As noted, it took a while for someone to dream that dream, and pay the freight.

In contrast, the recently closed #9E had already been visited by the architect (and the dream) when it was marketed, beginning in February 2009 (a particularly frigid part of a thin market). They started at $2.05mm on February 11 but were on a 6 week plan: dropping to $1.975mm on March 26, to $1.875mm on May 9, and to $1.775mm on June 17 before finding a contract on July 22.

in the ballpark, or out
If you ballpark the architect-designed #9E as a $200/ft renovation and the architect-invited #8N as needing that level of work, then #9E looks to be (very) roughly one-third off peak, a year-and-a-half later. Ouch. 'Course that would be a lesser hit to the extent that #8N was less than a full-renovation project.


© Sandy Mattingly 2009

Sep. 11, 2009 - 8 years, still fresh

quote of the day
Rudy Giuliani, whom I loathe, read this morning from Rev. Dr. Martin Luther King, Jr., whom I revere. Let's just say that Rudy made a nice choice:

“Everybody can be great,” he said, “because anybody can serve. You don’t have to have a college degree to serve. You don’t have to make your subject and verb agree to serve. You only need a heart full of grace, a soul generated by love.”

R.I.P.  2,752 souls (up 1 since last year) Plus those at The Pentagon and in Shanksville.

Basic coverage, with a strong WTC-focus: http://cityroom.blogs.nytimes.com/2009/09/11/remembering-the-horror-of-a-bright-blue-morning/?hp

(as if you need additional links for this)

© Sandy Mattingly 2009

Sep. 4, 2009 - do any of you people know how to pray?

today would be a good day
No real estate news from Manhattan Loft Guy today, but a most personal request. If you are the praying type, please offer some today for me and for Susan Smelin. We will be at Columbia Presbyterian today and some time around 9 AM she will become the proud owner of my left kidney. I can live without it just fine, but she can't.

She suffers from polycystic kidney disease, which developed into end-stage renal disease last year, and without a transplant she will have to go on dialysis (3 days/week in the hospital, or more frequently at home). Dialysis, I gather, is not fun and not everyone tolerates it. Beginning within about 30 minutes after the operation, my (former) kidney will be working just swell for her.

My recovery is relatively brief (out of the hospital on Sunday, most likely), activity level reduced for a few weeks after that; hers is more extensive, with a lifetime regimen of ant-rejection drugs.

Both of us could use any and all prayers. You non-praying types out there can just send good thoughts our way. Appreciate it!

will you need your kidneys after you die?
Uhhh, no, you won't. Nor any other parts of your body that someone else might benefit from having. The New York Donor Network website is http://donatelifeny.org/, where you can get information about donating organs after you don't need them. There's a form you can fill out, print and mail that enrolls you in the donor program, which you can access here. The main site has many, many links if you want further information about organ transplants.

I am going on blogger's medical leave, at least through Labor Day. (Let me know if you need to see a note from my doctor.) Be back sometime next week.

[Update Sept 8: home yesterday; all went VERY well; Susan is well begun on a long journey, so keep her in your prayers. THANKS TO ALL ]

[Update Sept 14: feeling very well, but marshalling energy; I am well on the way to a successful recovery. Susan's had a couple of up-and-downs but should be home today (2d time), but is getting stronger, with a 'beautiful' kidney ]

© Sandy Mattingly 2009

Sep. 3, 2009 - new loft price needs to be justified

asking 20% more for 2006 mints??
When I first saw the listing description for a Manhattan loft brand new to market (chock full of mints, renovation news, adverbs and adjectives) I assumed that it is priced almost 20% above the 2006 clearing price because all of the broker bragging was about new elements that had not been priced into the 2006 transaction. Silly me.

But listen to some of the babbling done by a different firm in 2006:
 

The new listing description is remarkably similar to the old one. The floor plans are identical, 2006 and 2009. But the kitchen photos show that the old chef's kitchen with those top of the line appliances has been changed. Looks like new cabinets (which now get proper proper names) and the cooking elements have been increased, and moved. Doesn't look to me like $300k worth of upgrades, however....

I got into

started by a guy who believes that sellers should have to prove the renovations they did, in the interest of greater "transparency". In my first contribution to that thread I talked about having represented an apartment for sale that was priced

above a very recent very nearby comp, for which we justified the premium by the quality of the renovation. In that case, I had before-and-after photos and contractor bills and materials to prove how much money got poured into that place. (In fact, that seller spent way too much money to create a very personal space; more money than she could have hoped to recover from a buyer who did not share exactly her taste.) My broker-babble there posed the challenge directly: "An exquisite renovation that is priced accordingly. Your only question may be 'does it match my taste?'"

For this loft, I assume the 2006-buyer-turned-2009-seller premises some of the premium on the new kitchen elements. If so, that seller may have to prove the value of that improvement. Otherwise, adding nearly 20% to a 2006 clearing price is not likely to be a successful marketing strategy.

Sep. 2, 2009 - 876 Broadway comes + goes QUICKLY / knowing what you can get, and getting all of it

Sep. 1, 2009 - (bad) quote of the day / lawyer stumbles in NYT real estate Q&A

was the nuance edited out?
The Sunday Real Estate section of the New York Times regular feature by Jay Romano, Real Estate Q&A last week posed a complex question and provided an overly simple answer from a lawyer who represents the Westchester Board of Realtors®. I wonder if the lawyer provided a more complete answer that got edited down. Indeed, I hope so, because the simple answer quoted (and then amplified) can give real estate agents (and the lawyers who love them) a bad name.

The question is also a little confused: 

the [seller's] broker for this apartment [I might buy] is also the broker whom I wanted to use to sell my own apartment,... Should I avoid listing with the same firm because of a conflict of interest?

The question is confusing because the Questioner has TWO potential relationships with the agent who represents the apartment s/he might buy, but asks explicitly only about one. The Questioner may bid (buy) the apartment the agent represents, and the Questioner may want that same agent to represent Questioner when s/he sells his/her own apartment. The lawyer's simple answer (below) is particularly superficial for not dealing with these two potential conflicts of interest.

simply wrong
The simple answer to the not-so-simple-question was:

No. [identifying information omitted] Always list with the person who is most effective and has your best interests in mind.

The correct overly simple answer is "it depends on what you want and why you value this agent, after you understand it". But at least this simple-but-wrong response deals with the Questioner's precise question.

Bear with me here (or bail out now), as I can't find a simple way to approach this, other than step-by-step. (Regular readers know this might be a good time to freshen up that cup of coffee.)

answer that does not match the question
Remember that the Questioner asked about a conflict if s/he listed his/her apartment with the same agent that was representing the other seller. The lawyer's extended answer, paraphrased by Romano, 

the broker [acting as "dual agent"] works for the seller and the buyer with the informed consent of both. “Effective people get the job done,” he [the lawyer] said.

He noted that a dual agent cannot absolutely guarantee undivided loyalty. But such loyalty, he said, might not be as valuable as having a respected, honest and effective agent working on your behalf.

No part of that extended answer addresses using the same listing agent, but this whole answer deals with buying through the agent who 'represents' the seller. Best to begin at the end, then, with that Dual Agency thing before dissecting that legal train-wreck of a (paraphrased??) comment "a dual agent cannot absolutely guarantee undivided loyalty".

"dual" agency is an odd duck, best served well-advertised
The NYS official disclosure form for real estate buyers and sellers is accessible here (pdf). (The form is not required to be signed for coops and condos in buildings with four or more units, but the substance of the disclosure is still required to be given to buyers and sellers by agents.) The key provision of that disclosure about an agent "representing" both buyer and seller in the same transaction indicates that this idea is ... fraught (I put some of the heavy words in bold):

An agent acting as a dual agent must explain carefully to both the buyer and seller that the agent is acting for the other party as well. The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty. A buyer or seller should carefully consider the possible consequences of a dual agency relationship before agreeing to such representation.

With that disclosure mandated by New York law in mind, refer again to the simple question asked (essentially, should I avoid the conflict?) and simple answer given ("No. ... Always list with the person who is most effective and has your best interests in mind."). Nothing particularly "careful" about that answer, with no indication that there may be possible effects other than the one I will get to ("a dual agent cannot absolutely guarantee undivided loyalty"). To be pedantic, nothing like, "after the agent carefully explains the risks and benefits, you should carefully consider whether that is best for you, or whether you prefer to work with an agent who can give you full-fiduciary-level services". 

consider the alternative
If an agent represents only one party in a transaction, that agent can be a full fiduciary with the following duties (per the form) to the buyer or to the seller: "reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account". Of these five fiduciary duties, the most problematic in a Dual Agency situation are Undivided Loyalty (as the form itself notes) and Full Disclosure. Keeping the train-wreck (Undivided Loyalty) aside still, the duty of Full Disclosure would be lost to a "client" of a Dual Agent.

With an agent who owes me (a seller) Full Disclosure, if my agent learns something about a buyer that might give me a negotiating edge, that agent is obligated to tell me, to use it to my advantage, and has no obligation to protect any of his secrets. This topic lends itself to Big Picture (vague) pronouncements, so I will try to be concrete.

more concrete scenarios
Let's hypothesize that my agent (as I am a seller) overhears or figures out that the buyer has some time constraints (a lease is ending, or some parent gift-money must be given by the end of the year), or that there are only two viable purchase candidates for this buyer and that the other one just went into contract. My agent's job is to exploit that information for my benefit. If, instead, "my" agent morphed into a Dual Agent, that agent would owe the buyer Confidentiality and I would never learn of these factors.

Or if I am the buyer, my agent might learn that the seller is under contract to buy something else so is under pressure to make a deal to sell. My agent's job is to help me leverage that intelligence to get the best deal possible for me. But if, instead, the agent who was "my" agent became "our" agent (a Dual Agent), the agent would have to hold that information in confidence.

Worse for the seller whose agent goes from Seller's Agent to Dual Agent: if there is a very comparable competing listing on the market that goes into contract during negotiations between buyer and seller, the parties will want to know what the contract price is (if they can find out). If the agent somehow learns that the contract price would advantage the seller (because it is very high), the Dual Agent would be prohibited from telling the seller this information while a Seller's Agent would be duty-bound to use it to put the screws to the buyer. Once you get the idea of how significant Undivided Loyalty is in a negotiation, more fertile minds than mine will come up with more powerful factual scenarios. I will offer just one more.

the Negotiating Eunuch
Even without any special factual nuggets that a seller's agent might exploit, the entire negotiating dynamic is different with a Dual Agent. One of the reasons that some people use agents is to get that important emotional distance in a negotiation; another is to take advantage of the experience of someone who negotiates coop or condo purchases for a living. Whether that takes the form of hand-holding ("relax; that last gambit only seems personally insulting; are you really willing to walk away because the Idiot Buyer wants your drapes??") or is more strategic ("I think they are bluffing and that they will make another counter"), the seller often asks the agent "what do you think?" or "what does that mean?"

But if "your" agent becomes a Dual Agent there is a reverse-phone-booth effect: the formerly powerful tool you had becomes a mere transcription service.

Seller: how much more do you think I can push this Buyer?

Dual Agent: I can't say. What should I tell the Buyer?

Seller: well, I can counter by dropping $50k but that is close to my Absolute Bottom Line.

Dual Agent: don't tell me that unless you want me to tell the Buyer.

Seller: I thought you worked for me!!

Dual Agent: I used to, but then we agreed that I would act as Dual Agent.

Seller: why did "we" do that?

Which leads us back to the lawyer's comments and the question: if Dual Agency can only be created by agreement of all parties, why would a Seller agree?

back to that train-wreck of a comment
Romano edits the lawyer's answer to put these words into the lawyer's mouth about the Loyalty of a Dual Agent (though he does not quote the lawyer): "a dual agent cannot absolutely guarantee undivided loyalty". Doesn't that weasel set of modifiers ("cannot ABSOLUTELY guarantee...") suggest that you might get some loyalty, and that -- in some circumstances but we can't promise in advance -- you just might get that Undivided kind of loyalty?

Instead, the NYS disclosure form is clear that when "your" agent becomes a Dual Agent, you "give up your right" to Undivided Loyalty. You had it. You lost it. No, "we might be able to provide it, depending ..." stuff.

Any "careful" explanation (as required by the disclosure form) should -- it seems to me -- include the Negotiating Eunuch. Some people don't need help negotiating; they may do it every day at work, in transactions involving many, many more dollars than an apartment or loft sale. So some sellers will maturely conclude that they can handle the entire negotiation on their own. But what do they get for "giving up their right to undivided loyalty"? In most cases, I expect that the sole benefit to a seller of "their" agent going in to the reverse phone-booth is that the agent believes the buyer and agent share a rapport and that the transaction can be expected to be "easier". No risk of misinterpretation between two sides if the same agent is in the middle.

I am trying to think of another "significant" "benefit" to a seller.

Still trying ....

When "carefully" explaining all this to "my" seller, I want to be very clear that I would owe neither party much loyalty if the seller and buyer agree that I should be a Dual Agent. I would owe both of them honesty, reasonable care, obedience, and confidentiality, but otherwise I am playing it straight down the middle. I would want to be so sure that "my" (soon-to-former) seller "gets it", that I would never be wishy-washy about Loyalty by suggesting "well, I can't absolutely guarantee you undivided loyalty, but ..." and then leave that pregnant ellipsis hanging and hope the seller draws his/her own conclusion.

Nor would I want a buyer to think -- after careful explanation of Dual Agency -- that I had his/her best interests in mind ("[a]lways list with the person who is most effective and has your best interests in mind"). Because if that is what the buyer thinks, there was something wrong with my explanation, no?

But then I am not a lawyer representing a Board of Realtors®.

more common scenario in Manhattan: dual agent with designated agency
It is much more common here for a slightly different potential conflict to come up. The seller of Beautiful Loft represented by a Brokerage Firm (let's call it "Corco"; although you could equally well call it "Prude"). The buyer has been working with a different Corco agent, and becomes interested in the Beautiful Loft. As a firm, Corco has a conflict in that setting unless the buyer knows (agrees) that s/he is unrepresented for purposes of the Beautiful Loft (in which case only the seller's agent participates). If that buyer wants to be "represented", both parties must agree that Corco is a Dual Agent and that the seller's agent is "designated" to work with the seller, while the buyer's agent is "designated" to work with the buyer.

a bit of a swamp
As the disclosure form says, this is another opportunity for a "careful" explanation. I have seen precious little practical guidance here over the years, but this is what the form says (in part):

I take this to mean that the two "designated" agents can go at each other on behalf of their respective principals, but if they choose to get guidance from their supervising broker, everybody knows that the supervising broker will give advice to both "sides" equally. I admit that I am a bit fuzzy about the "designated sales agent ... like the dual agent under whose supervision they function, ... cannot provide undivided loyalty" part.

Frankly, I would love to hear more specifics about what "designated" agents can and cannot do, but each time I have asked a lawyer or association executive I have gotten boilerplate responses that are not very useful in the real world.

What is clear is that there has to be a "careful" explanation of this. While NYS law does not require that the disclosure form be provided in most cases in Manhattan, I will use it and get my "client" to sign it.

who cares? why??
There is a sense in which none of this matters to agents in the real world except under three circumstances.

(a) The Department of State exercises its ability to audit firms for compliance and (in the absence of a form in the file) may start asking questions of the buyer and seller that could have embarrassing repercussions.

(b) Something bad happens to the deal after the fact, and sharp-eyed lawyers are paid to dig through the deal's carcass.

(c) A painful situation that came up in the last few years, the details of which are lost in my memory but the outline of which I saw reliably reported when there was litigation. At the closing table of a deal in which there was only one agent involved (the seller having a written agreement to list with that agent's firm), the seller's lawyer overheard a remark by the buyer about something the seller would have liked to have known, but did not (maybe it was that the buyer would have spent more??), although the agent knew. The attorney asked the agent if there was a NYS Dual Agent with Designated Agency form signed (of course not) and refused to deliver the commission check (a rather large number, as I recall). Teh firm sued for the commission, and lost because it appeared as though the agent had some loyalty to the buyer but had never explained to the seller about Agency. (Anyone else remember the details? I think it was one of the "S" firms....)

There is a sense in which this matters a great deal to a buyer who thinks that the agent who really (and exclusively) represents the seller somehow has the buyer's best interests at heart. And a sense in which a seller should never give up a right to undivided loyalty unless the seller truly does not care or if the seller gets something in return of real value (still can't think of another example).

to sum up
This is a complicated topic, hardly suited for simple answers.

This is a wordy MLG post, and your coffee is probably cold.

I wonder if that lawyer will write in next week to "amplify" his remarks.... Whatever, he is the source for my Bad Quote Of The Day. Congratulations. The certificate is in the mail, c/o the Westchester Board of Realtors®.