Disaster or Hyperbole

Rinette recently dredged up this ancient thread from 2009 about upcoming financial disaster at the Rushmore at 80 Riverside Blvd:

https://streeteasy.com/talk/discussion/9550-disaster-at-the-rushmore

You can see from the 750+ posts, a spirited conversation ensued. This was 14 years ago, and you can see some of us are still (bewilderingly) here.

After 14 years, we now have some perspective and a sense of the outcome. For example, here is the most recent closed sale showing a trajectory from $3.9M sale in 2009 to a $3.575M sale in 2023:

https://streeteasy.com/building/the-rushmore/17a

In this instance, the buyer paid all-cash. Between the nominal loss, transaction costs, monthly costs, and rent benefit, I’d estimate that the total return on his $3.9M of capital after 14 years was around $400K. Had it been purchased with $1M down, interest would have flipped it into a loss of at least the full $1M and perhaps a touch more.

The question for the crowd here is the following. Do you see this as a financial disaster? Or is that hyperbole?

What are you assuming for rent and $ amount of tax abatement benefit? The buyer got a big discount going in vs ask in case you noticed.

Am I misreading here, you are talking about $3.9M cost basis & $3.575M sale right?
Condo, new dev so ~3% closing costs of $117k.
Sale cost of 6% so $215k
So we have $325k capital loss plus $332k in fees => down $657k
Offset by whatever rent they didn't have to pay for 14 years (minus monthlies & upkeep).
Gets you to $+400k?, so you are assuming some ~$1.1M rent benefit.
That's a 10% return in 14 years?

Compared to
S&P 500 9/25/2009 ETF dividend adjusted level of about $93 entry price
S&P 500 7/6/2023 ETF level of $439.
So could have 5x their money.
Or 50/50 bonds-stocks and done like 2.5x maybe?
You can't live in your stocks, but there's a lot you can do with an extra $10M or so.

A buyer with a mortgage would have had a levered return, but also have to deduct all the interest expenses from the rental savings so let's say $1M ~75% down. Year 0 interest ~$90k, Year 14 interest ~$60k. So probably $1M in interest expense ballpark.
$1M down could have returned $2.5M in stocks let's say. Versus a -$600K return here. ($400K net in no-mortgage version, minus $1M in interest).
This represents a -60% return on capital, if my math is close?

>> Condo, new dev so ~3% closing costs of $117k.

At that time just 1% mansion tax plus 45bps or so title insurance. Call it 0.5%. Transfer taxes if paid by buyer are included in the recorded price.

Sale may be more than 6%. 5% to the broker plus transfer taxes 2.07% at this price. Call it 7%.

Question is what is estimate average montly rent over this time. The apartment has a huge terrace so comps are hard. Without terrace listed may be $11-13k. $14k-18k range?
Nada?

10y 421A. Approximately 60% tax saving over 10 years assuming no returns on taxes saved.

So first 10y taxes paid appx $15k per year (35-40k full taxes in those years). Appx $250k tax savings assuming 0 reinvestment rate on saved taxes.

https://www.prevu.com/blog/nyc-tax-abatements-guide-421a-j-51

@300 - seems like buy/sell fee estimate diffs nets out though then.

Rent is an interesting Q. Not a lot of comparables.
It's a big bland box, but with a good chunk of outdoor space.

$18k now seems possible, 2009 who knows. At various points (2020-2021) much lower.

The value of that outdoor space is in the eye of the beholder though, relatively high & near river you can have some very serious wind. Probably good reason the rooftop furniture is only 3d model staged. That umbrella would not last.
Pretty cool they got a hottub up there, though the adjacent tower overlooking would probably give me pause in terms of actually using it.

Is the Heat/AC just those PTAC units?

Kind of a funny mix of high/mid end.

So what is the net pnl calc assuming $16k per month average rent and tax benefit? The same calc with $15k average rent.

My rough numbers:
Benefit:
If there weren't to be any tax abatement of net rental benefit: Average $190k per year less $75k average maintenance+ unabated tax less $10-15k for insurance and upkeep. = $100k Per year. 13.75 years. $1.375mm + $250k in tax abatement.

$1.625mm

Expense: $459000
Purchase Closing cost 1.5% = $58500
Selling Cost 7% = $75k
Capital Loss = $325k

Net Benefit: $1.166mm on $3.9mm over 14 years. A paltry 2 percent return.

Plus freedom premium of not having to move. Some people may puts a lot of value on that especially cash buyers who likely will have plenty of other money to invest.

Here is a clearly lesser comp with no river view. Sold for 15% less as well. Look at 2013 rent of $20k plus. So average $16k seems very reasonable if not low.

https://streeteasy.com/sale/476601
https://streeteasy.com/building/the-rushmore/8p

Is it a lesser comp though?
You trade a wraparound skinny terrace on high floor for this.. one big (almost 2x sq ft), square deep terrace thats probably more functional & less windy. Could legitimately use it for workouts, let the kids & pets run around, etc.
Enough depth to legally grille, etc.

Also looks like 2 of the 3 bedrooms here are bigger than 17a.

Personally I think it's funny how much new construction slaps terraces onto units given how few you ever see in use.

Agreed on the rental value.

It is all about the view.

I see I've made the headlines.
I have my opinions, but for now, here's a nearby building with an apartment down from 2016, although it is still listed as meticulously renovated, and is wired for Time Warner Cable
https://streeteasy.com/building/3-lincoln-center/34h?id=1647587

If I was trying to sling condos in this city, I would probably not watermark the images if I worked at that brokerage, wow.

Also LOL on the reno - the 2011 & 2013 listings have the same kitchen as now.
The extent of the living room work by the 2013 buyer seems to be removing the wood paneling and/or applying paint, and changing the floors? Incredible they were able to get +$900k in 3 years for that, congrats.

Sales history is great
1996 700k
1999 850k
2011 2.4M
2013 2.7M
2016 3.6M
2023 ask 3M

Sorry to post and run earlier…

The best comp I have for 80 RSB 17a is this one:

https://streeteasy.com/rental/4115838

Same floorplan but no terrace. It did $12K quickly in 2023 and $10K slowly in 2017, after 9 months and many chops. Probably $8K in 2009, based on SE Rent Index. So let’s call it $10K average.

For the value of the terrace, I’ll ballpark it via initial sales price of $3.9M vs $3.1M. Not the same contract date, but close enough using SE Price Index. I think I saw another one of the same line that is similar. $3.9M / $3.1M * $10K => $12.5K.

That gave me an estimate that was $550K lower than what 300 calculated based on $16K rent. The rest of differences are minor, mostly coming because I spitballed incorrectly (e.g., 10% transaction costs on $3.575m rather than 300’s more precise calc).

Here’s the floor above, no terrace, with a contract date of mid-2010 selling for $2.95M:

https://a836-acris.nyc.gov/DS/DocumentSearch/DocumentDetail?doc_id=2010082300837002

Compared to 17a’s mid-2008 contract date, that print is low. I.e., puts a 1.3x cap on value of terrace. I imagine it’d be a bit lower with contemporaneous comps.

How do you explain 8D rent?

How do you explain 8P rent?
https://streeteasy.com/building/the-rushmore/8p

Without a River view.

Also 19D listing from 2013/14 are 12k range. Don’t think this building has tracked SE rent index which tends to include more smaller apartments.

In my opinion, BK downtown new developments and additional supply in that area (1 West End, Waterline Square etc ) certainly sucked the air out of Rushmore.

8P is weird. Look how many times it’s sat, blipped away for a few months, blipped back, etc. since 2012. Count the number of empty months against the single multi-year tenant in all those years, secured at the lowest price ever asked ($12.5K in 2016) after 6 months of listing. Something negotiated below that is market price. The rest is akin to an AirBnB premium.

>> Also 19D listing from 2013/14 are 12k range.

That’s where they started. Look at where they ended, how long it took, and how long the tenants stuck around.

Big picture on the “disaster or hyperbole” question, who cares? Does the question really hinge on whether the rate of return was 1% as I had it versus 2% as you did?

I would say not a disaster if you bought and lived in there. Just poor returns. Pure investor, a disaster.

Post attempt X (it really doesn't like when I post lots of links)

I still marvel at the price history I posted and I think its really indicative of the overall NYC market
Feel like I see a lot of price histories of this flavor.

Here I put in 0-2.5M condo in Manhattan search and picking some from first page with sales histories:

https://streeteasy.com/building/spring-condominium/5b
+100% in 10 years, then flat/down for 8 years (on market for 2 of those years)?

Here we have a unit on market 4 years, attempting to get +50% return on 15 year hold
https://streeteasy.com/building/52-thomas-street-new_york/sale/1653327

+50% in 8 years post GFC now -10% attempted sale on 6 year hold
https://streeteasy.com/building/the-link/28h

Asking -20% in 8 year hold (on market 1 year)
https://streeteasy.com/building/732-west-end-avenue-new_york/13

+20% in 3 years followed by 18 year hold trying to get +40%
https://streeteasy.com/building/bridge-tower-place/35b

I essentially wonder how long it will take people to digest the new reality of Manhattan RE returns.

A lot of the conversation is still dominated by people with memories of the 90s/00s.
Long memories of 10-30%/year returns vs recent decade+ of 1-2%/year.

Maybe its a matter of aging out, and the young millennial / GenZ buyer will not have the assumptions that Boomer/GenX do/did.

Yeah steve123, those links pretty much sum it up anecdotally. Or just look at what the SE index shows 2005-present. And prior to that, stitch in Miller Samuel data for average/median sales price with some fudge factor for quality changes over extended periods.

The long sales history you posted for 3 Lincoln is the history of Manhattan RE in one tidy anecdote. The 1999 => 2011 increase included a reno but was mostly about a 2x increase during the bubble. The 2013 => 2016 increase was half from the reno, half from a ~15% bump in the market.

We basically had ~25 years’ worth of inflation stuffed into 5 years in the early 2000’s. Those who rode that bubble made out well. Those who bought after, whether 2006 or 2011 or 2016, were left holding the bag. More often than not, it was the same set of people not understanding the bubble for what it was. That’s my take, anyways.

steve123>> S&P 500 9/25/2009 ETF dividend adjusted level of about $93 entry price

I find Yahoo Finance’s Historical Data very convenient for providing a history with dividend/split adjustments. In this instance, the entry price would have been $80, so a 5.5x return. VBIAX (Vanguard’s 60/40 fund) was 3.2x. Apply a haircut for taxes on dividends, and if you wish to assume an exit, cap gains.

It’s also interesting that all RE markets were like this. E.g., ones that made sense with a 5%+ cap rate like Phoenix AZ were fine. On a cash basis, those were 2.5x-3x depending on whether one could compound the carry in some form, which arguably is not very realistic. But roughly half from cap gains, half from carry. With ~4x leverage, it’d have been ~double the returns on equity. Apply haircut for taxes as you wish.

>> I essentially wonder how long it will take people to digest the new reality of Manhattan RE returns.

My sense is that it’s finally been digested, which doesn’t bode well for the outlook.

While I enjoy the mathematical gymnastics often pursued on this board, I do not think the vast majority of the world purchases their home based on comparable investments, much less to make returns. Nor do I elect to day trip rent a Revel rather than driving a $100k car that will depreciate to virtually nothing in five years, nor Air BnB a weekend house. I could rent the runway for far less than buying by suits too. Besides, I have lived in four places (ex-student housing) in 55 years; renting one or two year leases is a materially less attractive option on its face, and the notion that there are truly rental equivalents is largely a hypothetical exercise.

If one is to engage in this exercise, you also can't select arbitrary return points that favor one investment. VBAIX has barely doubled since 2000. It is flat vs three years ago. And one can't dismiss this as "if you wish to assume an exit" for without an exit you have no return to speak of, and the annual tax hit from equity/bonds income (which may happen in years that the portfolio actually earns no return overall) and the gains on exit versus the tax gift of primary residence real estate tax free gains cannot be so easily dismissed.

But when you get to that ending point and ask the question at the entry point would you forego [$xxxx] of "expected" better after-tax returns from historically higher risk equity/bond markets compared to an "expected" [zero][lower][negative] returns over 10-15 years from a primary residence, that [$xxxx] hypothetical would have to be quite large to sway many/most to elect long term rentals, the term of which and level of upkeep is not in your control.

nyc_sport,
I fully agree with your sentiment for a home you want to live in. I just call it freedom premium. However, the rents have been very cheap vs buying in the high-end segment call it more than $2500 per sq ft (or say $25k plus montly rent).

Nada's opinion are certainly very valid for that segment as long as your don't mind moving every few years. For basic luxury 1/ 2 bedrooms priced in $1000-$1500 range (rent under $15k), cap rates in the last 10 years have been at least 1 cap rate higher than high-end market and quality of rental (including the size of rooms; looks at Related rental buildings) and purchases tends be very different.

@sport - I agree that most don't buy housing based on logic or math, rather it is far more emotion and socially driven.

My specific point is that the rate of return assumptions for people that use rate of return as justification.. have not updated for a lot of people in the last 10 years, and I do think its generational.

This includes people who become accidental landlords bc they hold onto their old place to rent it out, or "housing overconsumers" that over leverage themselves upgrading their NYC accommodations every few years. I have friends in both buckets, they are mostly all GenX++.

The real annual return number is probably closer to 2% than 5+% of olden days.
This small enough seeming difference changes the break even hold period substantially. At 5%, you only need to hold 2 years to cover your TX fees, roughly. At 2% now you need 5 years.

People used to buy & flip up in the 90s-00s here more than anyone will care to admit anymore. Every life event (coupling / marriage / first kid / second kid) triggered an increased housing need. When you could more or less break even in 2 years this was fine, now this is not.

Clearly for you, who has only lived 5 places in 55 years, owning is the logical answer. My parents haven't moved in 40 years, so obviously owning was great for them. I have lived 5 places in the last 15 years, probably fewer moves in the next 15 years, but not 0. The illiquidity of the housing I do own has changed my decision making during & after COVID.

Re: VBAIX, you need to adjust for dividends
Dividend adjusted it was at $10ish in 2000 vs $40ish today, so 4x the money. That is, you are missing 2x the return by ignoring dividends.

For basic luxury 1/ 2 bedrooms priced in $1000-$1500 PER SQUARE FOOT range.

"For basic luxury 1/ 2 bedrooms priced in $1000-$1500 PER SQUARE FOOT range."
Where do these exist anymore in Manhattan? Barring needing-renovation stuffy old coops with big downpayment?

For basic luxury I assume a building with a doorman, and I won't even require W/D in unit.
$1500, maybe, getting started.
ex- https://streeteasy.com/building/one-sherman-square/17c

Plenty of stuff below $1500 without going to mid-town or Murray Hill. Most below are more than basic luxury and condos.
https://streeteasy.com/building/76-madison/3a
https://streeteasy.com/building/adagio-condominium/2f

https://streeteasy.com/building/ansonia-hotel/541
https://streeteasy.com/building/avonova-condominium/11g

https://streeteasy.com/building/the-empire-condominium/4d

@300 - 100% of those listings are in the top half of your $1000-1500/sq ft range :-)
Most were north of $1400.
The one unit at $1250 has $3/sq ft monthlies.

I should have been more specific in that I mean $1000 sq/ft luxury Manhattan isn't really a thing.

But these are high finished condos. Coops will be 20% lower at least.

For $1000, you will get basic luxury rental quality coops with 8 foot ceilings for sure. Nothing will be fancy.

https://streeteasy.com/building/the-carlton-regency/16f
https://streeteasy.com/building/290-west-end-avenue-new_york/6d
https://streeteasy.com/building/150-east-61-street-new_york/11c

Steve, Do you only wear Prada or eqt? Anything else not acceptable? Plenty of Gap eqt available in NYC coops and even condos ;)

Ignore the last link 150 East 61st.

I'm more of a Brooklyn Denim & Sunspel kind of guy, the joys of WFH.

Fair point on the less-than-luxe coop market.

I think the challenge for me, when I was a first time buyer (and probably many) is the higher down payment burden. Sure it's 20% less than a condo, but I need to put down 25/30/35% plus need some higher bar of post close liquidity, like say 2 years of payments.

For round numbers let's use a 1M coop/1.2M condo example. So hypothetical buyer with ~400K TC.

On a cashflow basis by the time they can afford the coop payments, the extra 20% for a condo is maybe 1-2 years of raises more.

But on a downpayment basis, saving 10/15/20% + 6mo of payments on 1.2M is 160k-300k vs 25/30/35% + 2 years of payments on 1M which is 410k-510k. The 210-250k delta there is certainly more than 1-2 years more savings on 400K TC (take home pay being like 250k).. possibly 5+ years. Mostly banking on getting the TC up fast enough to start saving faster.

So for the rent haters, that's 5 more years that the prospective buyer is subject to the whims of the rental market and variable housing costs.

Terms & Conditions may vary, Members of Bank Of Mom & Dad are exempt.

>> Terms & Conditions may vary, Members of Bank Of Mom & Dad are exempt.

LOL

Sunspel is fancy ass polo shirt. I can't afford full price.

Steve, Here is your $1000 per sq ft condo in ok condition.

https://streeteasy.com/building/the-continental-condominium/sale/1667902

300>> I would say not a disaster if you bought and lived in there. Just poor returns. Pure investor, a disaster.

That seems like a mental healthy attitude.

My own attitude, which admittedly may not be particularly mentally healthy though perhaps more financially healthy, is this. You only have one nest egg. It doesn’t come in separate packages that cannot be readily mixed, mashed, and separated at your whim. Adult life only affords you ~4 opportunities to multiply your nest egg across ~14 years spans. The first one only half-counts, because you’re starting with little money. Same with the last one, because you’re on the way out. So only ~3 opportunities that matter, really.

Choose haphazardly based on a shrug and the whims of the day / get unlucky, you end up with 1x after 14 years. Choose decently based on a degree of attention / do OK, you end with 2.5x. Choose well with unbiased analysis / get lucky, you end up with 5x. I endeavor to roll 5x on all my opportunities because, well, why not?

That said, I’m totally sympathetic to the nyc_sport’s point that you should not go stressing about spending on stuff. But at the same time, people to a great extend laid (or still lay) giant bets on housing relative to their net worth. It’s just not that big a deal to drop $2K on a suit in any given year, or $10K in car depreciation, if your net worth is $1M. But placing $1M cash on a volatile asset, or leveraging it 4x to a $4M asset, is another matter. Acknowledge it or not, you’re laying down bets with your nest egg.

Only one person I’ve ever known depreciates home purchase like a car or a suit. Everyone else treats it as going up by an uncertain (i.e., volatile) amount. And unless they’re ultra high net worth, they care deeply about what happens. Hell, even when they’re ultra net worth, they sometimes still care deeply. Have you ever seen someone rich put a suit, or a car, up for sale at a price that takes years of chops to clear the market? Happens bewilderingly often with homes.

So unlike 300, for me, the distinction between “whatever” and “disaster” is more about net worth rather than “lived in” vs “investor”. If this were a $40M net worth person with a $4M portion that flatlined for 14 years, that’s a “whatever” relative to what the rest did. If it’s a $6M net worth person, it’s a “financial disaster”. With due acknowledgment that saying the words “financial disaster” to anyone with $6M is hyperbole in and of itself. And if it’s a $1.5M net worth person losing $1M, it’s a financial massacre.

From what I can tell, the specific buyer of 17A didn’t seem to be an ultra high net with individual but was obviously rich enough. Even if this one weren’t UHNW, they typical $4M apt buyer isn’t — simply because there are too few of them around relative to the number of $4M apt buyers.

https://streeteasy.com/building/yorkville-tower-1/15h

steve123>> But on a downpayment basis, saving 10/15/20% + 6mo of payments on 1.2M is 160k-300k vs 25/30/35% + 2 years of payments on 1M which is 410k-510k. The 210-250k delta there is certainly more than 1-2 years more savings on 400K TC (take home pay being like 250k).. possibly 5+ years. Mostly banking on getting the TC up fast enough to start saving faster.

I was always generally bewildered by this rush of upwardly mobile individuals to lever one’s self into poor-yielding housing as soon as humanly possible. I know Keith likes to talk about people with balanced portfolios these days, half in RE and half in stocks or whatever. But I recall people on this board in 2009/2010 acknowledging stocks as good value, but unfortunately the reaction to buying from many was “With what money? All our cash is tied up…” (in poor-yield illiquid places the locked up years prior).

Besides, if you were half in Manhattan RE and half in stocks circa 2009, shouldn’t you be 85% stocks and 15% Manhattan RE by this point given the returns? It’s nice that everyone found religion after the fact but not really the same thing at all.

>> People used to buy & flip up in the 90s-00s here more than anyone will care to admit anymore.

Exactly. And many continued into the next decade until they hit a wall.

Nada, I put ~20% freedom premium on living in a place I own. I just don't want to move and like familiarity. That is what guides my comment about "if you lived in it, not a disaster". Ken Griffin probabaly puts a 100% freedom premium. When I was 5 years out of grad school, the premium was negative. 10 years out, zero. Then the premium increased rapidly. In addition, call it $1500ish per sq ft nicely renovated coop segment I live in, the cap rates are higher than real luxury condos at $2000 per sq ft plus. I am personally very happy with my purchase from 2011 but I did two partial renos (without paying through the nose) which added value. Keith's brokerage refund paid my mansion tax with money left over.

BTW, those stuffy Park Avenues coops at $1000 per sq ft unrenovated are starting to look pretty attractive. So who knows I may decide to sell and live there and find George as my neighbor.

These ones for example:
https://streeteasy.com/building/1049-park-avenue-new_york/10a
https://streeteasy.com/building/1120-park-avenue-new_york/7a?from_map=1

@nada - re: leverage
Hypothetically speaking, what 15 year holder with 3% mortgage would be in better shape:
120K down on $1.2M condo / 230k in stocks
350K down on $1M coop / 0k in stocks

The last decade or so has been pretty upside down from a rates perspective, so to me, the argument for "put as much down as possible" no longer made a lot of sense. Especially since all my big-downpayment owning coop owning friends were basically $0 in stocks/rainy day fund.

I remember a friend with 3 kids under 10yrs conceding to me once they didn't even have a 6 month rainy day fund at one point.. though they did have a very nice coop (and the backing of wealthy parents)!

Obviously the answer is "well both.. big downpayment and big savings" but in practice that's not what I'm seeing out there. In reality almost every 2bed/3bed coop owner I know funded their downpayment with some mix of parental money & previous studio/1bed flip equity going back to 1999 or so. So again not a culture of savings from a lot of the big downpayment makers there anyway.

Further, if you need to move, the condo owner has more options than a coop owner.

A coop owner must fund a new buyer who is going to pass the board, including paying enough to not have the board reject based on pricing.

The condo owner worst case could rent out at a loss but with 75% of their monthly costs covered on a cashflow basis. You rent from many of these owners :-D

300>> Nada, I put ~20% freedom premium on living in a place I own. I just don't want to move and like familiarity. That is what guides my comment about "if you lived in it, not a disaster". Ken Griffin probabaly puts a 100% freedom premium.

Different strokes for different folks, I get it. That’s why I was asking “disaster or hyperbole”: different people can look at the same circumstances and draw different conclusions.

Ken Griffin can make pretty much any purchase he wants, have it go to zero, and in my book it won’t be a disaster because he’ll keep on 5x-ing his net worth regardless.

>> BTW, those stuffy Park Avenues coops at $1000 per sq ft unrenovated are starting to look pretty attractive. So who knows I may decide to sell and live there and find George as my neighbor.

Do it! I’ve always wanted to know one of the bluebloods.

>> Hypothetically speaking, what 15 year holder with 3% mortgage would be in better shape

Well, 15 years ago rates started at 6% for fixed and 5% for ARMs before going down. Clearly putting down 10% on a condo and the rest in stocks would have yielded a better outcome. But I think the reality of it, by my accounting, would assign a ~0% RoR on the condo+loan+stock portfolio. You might be making ~$24K each year in the stock position, but that is offset into the negative carry of the condo+loan. Better than a negative RoR, I suppose. But are these the only two games in town?

@nada - fair point, though rates have been in the 3s since 2012, maybe a bit earlier with ARM products, jumbos & relationship discounts.. Something like 75% of current mortgage holders bought or refi'd into a 3.x% rate mortgage, per a Odd Lots podcast I listened to.

So for a hypothetical 2012-2021 buyer given those menu options, the less completely you were in RE the better.
In reality the buyers would have been better being 100% in stocks, but thats a less popular line of reasoning.

I think again on the stocks vs NYC RE trade, the timing risk of NYC RE is underestimated.

With a portfolio of stocks, you are inherently DCA. You have money you can invest per paycheck, month, annual bonus cycle, quarterly, whatever. With housing you save up for years and when you have enough & see a place .. you pull the trigger once. NYC RE purchases have huge inherent market timing risk.

Purchasing my condo required me to convert a portfolio of stocks with average cost basis across years and make a one-time RE purchase. My timing sucked - traded sideways for years since. Some peoples timing was great. Others actually top ticked before a crash. Etc.

Same thing on the way out. If I have a life event, I can liquidate 5%, 10% whatever of my stocks.. regardless of pricing levels at the time it doesn't have a huge impact. I don't have to time my sale perfectly because I'm never selling it all in one shot.

Sure you can HELOC your equity away, but then you just added another monthly payment you need to make.. and what if your condo traded sideways for 5/10 years? The HELOC is just reversing principal payments you made rather than tapping paper equity.

People love them because they aren't taxable. But it's an interest bearing loan, and just bringing forward potential future sales proceeds. So 20% tax once at EOY vs current 7-9%/year HELOC rates..

>> fair point, though rates have been in the 3s since 2012, maybe a bit earlier with ARM products, jumbos & relationship discounts

Agreed. I was just pointing out that the outcome was more like 3.5%-4.0% blended over the years. Probably now at 3% or less for many folks.

On 10% down, that probably was not happening anymore by 2009, no?

Also I'd add that sometimes you don't get to choose your exit point.
Life events can be good or bad. A lot of them happen in the 30s-40s.

In my condo there's been quite a lot of life events in the last 4 years.

Just that I know of, 5% of the condo has divorced, and another 5% have realized that a 2nd kid was incompatible with a 2 bedroom. Another 5% left the city for another state, or the burbs.

Some became forced sellers, others became forced landlords (while renting their new primary residence). None of them made it to the 5 year hold, let alone 10 year. Pretty much every studio occupant owner realized it wasn't for them and fell into the forced landlord category as they moved up.

There seem to be a few more "conscious uncoupling" situations in the works to my observation, so we have a run rate of like 4-5%/year. Average marriage lasts 7 years these days apparently, shorter than your NYC RE break even.

>> With a portfolio of stocks, you are inherently DCA…. With housing you save up for years and when you have enough & see a place .. you pull the trigger once.

“You can’t time the market” was a popular refrain here back in the day. As if you’ve become a disciple of Satan for even *verbalizing* much less reacting to any notion of cheap vs expensive and changes to risk / reward over time.

I personally think such an absolution of responsibility for any sense of value puts people in the wrong assets at the wrong times. Say you are “supposed” to be 25/25/25/25 in stocks/RE/bonds/cash based on some long-term view. Best-case, you stick with these ratios for 80 years and achieve average returns. Reality, however, is the “good” ratios change over time based on chasing the winners of the prior decade or two. If the last decades’ returns outperformed in asset X because it was underpriced, everyone now think those do better, so everyone increases their allocation after-the-fact into the previously-underpriced and now relatively-overpriced asset. E.g., everyone found religion in 202x about stocks vs NYC RE rather than in 2009. A great way to underperform on average.

I also understand bonds belong in everyone’s portfolios, but do I really need much/any when it’s yielding 0.6% or 1%? Can’t I just double up my “supposed to” exposures in decades when it’s yielding 5% with the same degree of risk & uncertainty as when it was yielding 1%? How are 10yr bonds going to meet their 40-year historical average of 8% when yield is 1%??? It boggles the mind what people are happy to DCA themselves into.

>> Average marriage lasts 7 years these days apparently, shorter than your NYC RE break even.

LOL.

@nada - happy to provide a laugh on Friday! Also, careful you are almost verbalizing the bull case for NYC RE (everyone has finally capitulated and moved into stocks) lol

>https://streeteasy.com/building/the-continental-condominium/sale/1667902

This is actually very nice in every way. Had it been available in 2021, I would have certainly looked at it, with lower down payment / higher leverage being a huge selling point vs coop I went for in the end that required a higher down payment. Currently the unit is available for ~6700 for rent, so considering high monthly costs, it's a meager 3.4% cap rate.

Ok when mortgages are 2.7% but makes little sense in the current environment.

The listing is actually pretty interesting from a price history too:
2005 sale - $1M
2017 sale - $1.5M (+50% in 12 years)
2023 ask - $1.3M (-13% in 6 years)

Diffing the 2017->2023 photos, it looks like the 2017 buyer did a mild kitchen Reno (cabinets & some appliances), as well as redoing floors, and removing some built in shelving/cabinet situation in the living room.

The 2017 listing description makes it sound like the 2005 buyer did a "full renovation", specifying: "Brand New Longboard Wood Floors and Slate Flooring in the Entry and Dining Areas. 7 Custom Built Closets, All New Doors and Knobs, Electric Window Shades in All Rooms, New Pavers and Door on Terrace, All New HVAC Units, Crown Molding Throughout. Windowed Kitchen includes Sub-Zero Fridge and Wine Chiller, Viking Range, Fisher & Paykel Dishwasher, Quartz Countertops and USB charging Station. Both Master and 2nd Baths with Floor to Ceiling Marble, Granite and Glass and Kohler/Grohe Fixtures and Glass Sinks. Multi-Jet Master Shower. Every inch of this Apartment is Renovated and Move-In Ready"

So it seems like every buyer of this unit going back 20 years was a money loser probably? Or at the very least underperformed even inflation.

Nada, Ha!! I will heavily dilute the blue bloods there. Guessing the left over old generation has 10-15 more years before their heirs living in BK townhouses or downtown sell those to people who will dilute the "stuffy heritage" further. In the meantime, $1000 ish per sq ft unrenovated sales will continue.

>>Do it! I’ve always wanted to know one of the bluebloods.

50% of marriages end in divorce.

But think of the alternative.

The other 50% end in death.

>> The other 50% end in death.

LOL

>> Also, careful you are almost verbalizing the bull case for NYC RE (everyone has finally capitulated and moved into stocks) lol

Nah, there has been no capitulation yet. Just a long, sorry 15-year slog of lost opportunity and negative carry. No rush out the door, just a lingering episode people would like to forget about.

Is it gonna change anytime soon? Who knows. People are still stuck in a ZIRP mentality. How many articles have there been with homebuyers squeezing themselves in with a 6-7% mortgage with plans to “refinance in a few years once rates go down”? Rates could go down, but they could go up too — but people seem to think they know a LOT more than the forward curve says.

The best play for NYC RE, IMO, continues to be borrowing homes at 2-3% cap rates and putting your cash to use elsewhere. And these days with Tbills yielding 5.5% risk-free, options for “elsewhere” don’t need a lot of imagination.

>Nah, there has been no capitulation yet.

Where do you think prices will bottom? At what cap rate?

I think stuffy west of Lex UES coops estate sales at $1000 per sq ft are close to capitulation. I realize it is a small segment but price decline has been close to 25% from the peak. Hence, I noticed. I would buy one and renovate but the service level, which you pay for in form of maintenance, is too high for my liking. With my reno cost and expertise, I will be in for 3.5%+ cap rate (if blue bloods let me in) as large rental apartments in that area are hard to find.

Smaller non-stuffy coop apartments relative to rents are looking fair. Rents per sqft per month are the highest for the smaller apartments (1000 sq ft 2 bedroom for example) adjusted for quality.

Luxury and Ultra-luxury 1500 sq ft plus size condos not so much.

Then a lot of stuff in the middle.

Nada, What do you think? What percentage price decline by segment which can also be summarized by cap rates? Ultra-luxury for example is still under 2% cap rate.

Another Park Ave coop example to my liking except stuffiness.
https://streeteasy.com/building/1040-park-avenue-new_york/11c

@300 " Minimum (50.0%)" haha, its not for the likes of me
+2% flip tax
+whatever obscene post close financials they demand given the above

All to get an "estate condition" coop at $1100/sq-ft on the UES with $2.3/sq-ft monthlies?
I'm sure the coop board will be super fun to get your renovations approvals through too.

Note the unit also fell out of contract twice in 2021 & 2022, so I'm sure the buyer approval process with the board is tons of fun!

I don't care about 50% downpayment at the current rates. 2% flip tax will all be built into price and I will be representing myself and collecting buyer's broker commission as I do for all my transactions.

Monthlies are actually well in line with a full service building.

I know how to design and reno with minimal structural changes - basically gas stove and plumbing fixtures don't move much. Whatever I propose will likely not get any objections more than one round. Some apartment layouts don't work for this type of reno. But this one does.

Board approval. Who knows. For know I am not selling where I live. This is just entertainment.

Also for 1040, all I would need to do is open the area "Breakfast room" and "Pantry" to the living room and dining room for an open concept living/dining/kitchen with some strategic sliding doors. It is unlikelty the coop will have any objections.

I love this classic 8. I don’t have the money to buy it. Maybe in a decade.

I do think the price is comparatively fair.
My place in Murray Hill was less than half the square footage and is ~50% price and maintenance. But this apartment is much, much better located, in a better school district, on higher floor. So premium over mine is well-justified. The 50% down is a problem, these places will need to move away from it eventually.

* meant to say my place is 30% price and maintenance.

@300. I could be happy with a slightly reconfigured 1040, and agree - a reasonable reno probably wouldn't encounter much board push back. Boards are well aware that a unit that hasn't been touched in 50 years will need some TLC, and that it's in their building's interest to let that happen. When I bought my unit from the original owners (who were renters when the building converted in the early 1970s), the board expected that I'd at least be putting in a new kitchen and bathroom.

What is interesting to me in many of these sales, which also ties into the entertaining rent/buy/hold discussion in this and other threads, is the number of units which have had a single owner for many years -- in many cases for quite a bit longer than any mortage -- people bought as adults, and stayed there(*). I'd be curious to know the average age when people purchased in many of these buildings. I didn't buy until I was nearly 50 (loooong term NYC renter).

There is something odd about 1040's current breakfast room / office configuration - I don't think that's an original floor plan, but can't find any other C units for reference. A look at other plans/renos in the building implies that the board isn't too fussed about renos, although they may balk if you tell them that the kitchen cabinets are coming from Ikea.

(*) Fewer divorces, but perhaps more 'friends' tucked away in some Murray Hill apartment.

Aaron, I think they moved the dining room wall to carve out an office.

On reno approvals, most issues are when people want to convert dry area into a wet area. Moving the gas stove more than five feet is a big no-no as this may trigger gas testing of the whole building.

Most people would want to move that bathroom between staff room and office towards the kitchen which I believe should be possible given that the kitchen has plumbing. However, this is where they would get into problem with the board as the staff room may not be deemed a wet area by the board. Board wants straight shot from toilet to the 4" waste riser. So I think that bath is something you live with in that location - perhaps just expand a little.

Here is renovated rental comp to 1040.

https://streeteasy.com/building/1085-park-avenue-new_york/10b

Another one with lesser reno. So rental equivalent renovated will be $25-$30k for 1040. And 1085 may be lower ceilings than 1040. That is why I think 1040 like places have more or less bottomed.

https://streeteasy.com/building/1085-park-avenue-new_york/09b

Question for anyone who has any thoughts: How much do you think the minimum down payment amount matters for a high maintenance full service building? One of the buildings in our neighborhood has gone down to 20% minimum downpayment from 35%, and I'd like our building to do the same. Another board member has said that with our level of maintenance, that number just doesn't matter, and that the limit on max-financed amount goes hand-in-hand with our maintenance. I think he may well be right, but I am curious as to what others think: If you were an young professional family with household income of $650K and liquid savings of $800,000, would you consider a classic seven at $2M with 20% down and monthly maintenance of $6500?

Krolik>> Where do you think prices will bottom? At what cap rate?

Using the SE index, we are 5% off the mid-2022 high and 3.5% off the early-2021 bottom. I think breaking that bottom is more or less a done deal and a matter of lags in the index making their way through. Beyond that, it gets fuzzy. My best guess is down 5% +/- 5% over the subsequent year. And down another 5% +/- 15% across the subsequent decade. So sideways mostly, like the prior 15 years. I.e., a combination of long-term stagnation and inflation will likely do the work rather than any sudden change.

Of course, that’s just a guess with a lot of inherent uncertainty.

>> Nada, What do you think? What percentage price decline by segment which can also be summarized by cap rates? Ultra-luxury for example is still under 2% cap rate.

What I said above, more or less. The structural ordering across the submarkets will vary, but neither enough nor interesting for me personally to care. Cap rate normalization will likely be slow, IMO, unless it comes from a sudden drop in interest rates.

>> Here is renovated rental comp to 1040.

These seem more like prayers than comps. Current 3 listings at 1085 Park Ave are 64, 129, and 137 days on market. All three are priced significantly higher than the last place that rented, in March, after 199 days:

https://streeteasy.com/building/1085-park-avenue-new_york/02b

Nada, Where do you put 1085 10b market cleaning rent (I say $25k+; but below $30k for sure) and what would be rent of 1040 Park 11C with similar reno to 1085 Park (I say the same range; perhaps a touch higher)?

That would basically make 1040 Park 5 cap with $500k reno.

Steve>> Minimum (50.0%)" haha, its not for the likes of me

300>> I don't care about 50% downpayment at the current rates.

I’m with 300 on this one. 6.x% essentially risk-free and after-tax is good enough to earn a maximal allocation in my portfolio. And I’ve got some unusually attractive risk-bearing after-tax options available.

What’s your thinking on this, Steve?

>> If you were a young professional family with household income of $650K and liquid savings of $800,000, would you consider a classic seven at $2M with 20% down and monthly maintenance of $6500?

How does a *young* professional family with an income of $650k attain $800k liquid savings? After tax this income is closer to $350k. After spending on rent, food, student loans, kids daycare, it would be really hard to save $200k per year or more. And if the family is young, for how many years have they had this level of income? It was probably materially lower in prior years.

That maintenance is really high, wow. I think the price would need to be materially lower in order for this apartment to make sense at this level of income (but I am cheap), or in comparison to what else is available in NYC.

Regardless, I think downpayment requirement has to be 20% at most, because even people with over a million in savings do not necessarily want to keep all of their money in equity of one coop apartment. They might have better investment opportunities available, and desire diversification.

>> If you were a young professional family with household income of $650K and liquid savings of $800,000, would you consider a classic seven at $2M with 20% down and monthly maintenance of $6500?

For my family personally at that income/age profile, absolutely not.

After-tax that’s ~$400K of income. Housing spending would be ~$15K/mo, or $180K/yr, for what you’re talking about. That’s ~half of income on housing. And I f one’s spending 50% on housing, it’d be kinda silly to not spend at least 30% on other stuff. That’d leave 20% at most for savings. Too low for my tastes.

At that income/age profile, I’d spend 25-33% across *everything* and save the remaining 67-75%. Perhaps it’d be 50%/50% with young children. And to preempt any incredulity regarding how impossible it is to live on *only* $200K after-tax with children, if 99% of the population can do it with a fraction of that, trust me, I’d be fine.

On the use of $400K out of the $800K nest egg for down payment, that’d be a show stopper as well. The $400K downpayment in 3% cap rate housing is dead money. And the capability to invest the other $400K aggressively is neutralized, because it’s only a 1-year cushion on a costly locked-in lifestyle dependent on high income. So that’d make the entire $800K nest egg dead money. Not for me.

At that age/income, I’m looking to parlay $800K into $3.2M over the next decade. With a savings rate of $200-300K/yr, I can afford to be aggressive. Lifestyle is neither dependent on a high income, nor is it locked-in. Lose ability to earn $650K/yr? Not the end of the world, your budget can fit comfortably inside an income of $325K/yr. Plus, you can easily cut spending on a dime, pack up, and go back to Queens or whatever.

Point being, earning $650K/yr should be a privilege, not a prison.

Having said that, not everyone has my priorities. I’ve certainly had colleagues over the years who, when fitting the age/income description you gave, pulled the trigger on something like what you posted. Materially lower maintenance, but for smaller apts at the same-ish or a bit higher price.

Did the 20% down payment make a difference? Probably. I think this class of people have such a sense of urgency with buying a place that they want to do it as soon as possible. Saving another $400K for 40% down places is only a couple or few years away, but why wait when 20% places are so readily available for something you’ve been yearning for so long? Now, now, now!!!

>> At that income/age profile, I’d spend 25-33% across *everything* and save the remaining 67-75%. Perhaps it’d be 50%/50% with young children. And to preempt any incredulity regarding how impossible it is to live on *only* $200K after-tax with children, if 99% of the population can do it with a fraction of that, trust me, I’d be fine.

That career might be predicated on getting lots if help + living in Manhattan (or somewhere within 30 minutes of the office). Some in population can do it, but maybe not everyone. Depends on how they make the 600k. If the career requires lots of overnight travel, they might need daycare AND a nanny. That is easily 8-9k a month.

When i started in the current field, my parents asked why not continue living in remote BK or Staten Island. That was a non-starter.

@nada - personally more apartment than I need & not a location I need/want to be in & pay premium for

I suppose it might be a good deal if the size/location meets your parameters and you think you have experience in expediting & cost controlling a renovation.

I'd also not underestimate the twisted logic of buying "now now now" rather than save another 20% in NY. I think contrasting with suburban homes, NYC apartments tend to be "just so" size-wise for a given cycle of a persons life (aside from bank of mom&dad members).

So the amount of time that the 2bed/1.5bath or 3bed/2bath in K-6 district or whatever makes sense might be 5-10 years. One of my friends that finally stopped sleeping in their living room with the last upgrade 8ish years ago is already contemplating his downgrade as he ships his kids off to college.

So once you've gotten enough to buy into the unit size/location you need, arguably every year spent saving more is one less year you will inevitably end up holding the apartment.

"Point being, earning $650K/yr should be a privilege, not a prison." - this is something I agree extremely hard with. It is also lost on a lot of NYers. This kind of gets to my point of why would I lock into owning bigger and bigger units that then lock me into maximizing my earnings potential indefinitely. This goes in my "why its often better to rent" bucket.

@MCR - $6500/mo seems like a ton of monthlies to me & surprised there's a classic seven to be had at $2M, but I suppose that's because of the monthlies?

Further I think young family with $800k liquid savings on $650k income is an interesting niche. After tax $650k is $325k income, of which $120k can easily go to rent. Retirement savings, kid college savings, eating, clothing, vacationing, etc.. could easily have under $100k/year of liquid savings. Most industries that pay this well have a decent growth curve so anyone on $650k hasn't been there for long, certainly not 8.

And to the same point I made to nada - I don't think the window of wanting/needing/affording a 3 bedroom is so long?

Also talk about price history & length of apartment size need.. we have a 2007 article talking about pre-war 3 bed coops costing $2.5M plus renovations, haha. Doesn't feel like we've moved that far?
https://www.nytimes.com/2007/07/22/realestate/22cov.html
Light googling on the 3 couples profiled shows one sold & left the city within 5 years (at a loss), one had flipped to an even bigger unit (at a gain) within 8 and one is actually still in their unit!