Sale at 10 East 85th Street #7C

The rental value on this place is zilch because it's a coop. Most coops have all kinds of stupid, cockamamy rental rules that make the place utterly and totally worthless unless you live in it yourself. Buy a condo or a townhouse if you're interested in becoming a landlord.

The point is for hypothetical purposes, not to actually rent it. The question is the rent for a comparable rental.

Rhino - I am not the right person to ask, but I get your question. Maybe $4500? No expert...just a guess, but I think you will get a bunch of responses and hopefully this will bump it up for you.

I'd guess between $4000 and $4500.

Maybe a comp?
http://www.streeteasy.com/nyc/rental/523214-condo-40-east-78th-street-upper-east-side-new-york

I'd say truth is on the money or very close. Might even have to take a little less is such a soft market just to get it working again. So, do the magic...what should it sell for?

$4,000 is about right - maybe even a little too high:

http://www.nybits.com/apartmentlistings/bd0ff19ce325fe834d955a022f6c5a37.html

In other words, after reducing the price by $500,000, it's still 50% overpriced.

I think more. Location and finishes call for 5500 to 6000. I'd say cap it at 5 percent and pay just under mil. If cap rates never get to five I have had to be a stevehyjx and never buy. Rather own stock and bonds from year level.

Ha, no secret from my lips, you know my routine....4250 times 200 = 850,000 should be the asking price.
Negotiate between 10 to 20% off (and it is a coop but she is right next to CP) 850,000 times 85% = $722,500.

Come on comping to York. Size finishes and park you can't get this for 4000 please.

Right. Prewar, park block, good renovation, WBFP, etc. Don't know how you'd find a rental like that, but say $7K.

just to toy with the numbers...lets say 5500.
5500 X 200=1,100,000
kxock off let's say 20% = $880.000
you know...that's pretty close to feeling right.

Right. Or I'd say 6. I'd cap 50k at 5 to 7 and get 1mm tops. Ideally 800k is a no brained. Like steve said pricewise. The issue as well is of you want to live like that you can't find a rental with those fonishes. We do without the finishes.

$5800 get you a little further south even.
(don't forget all those free months rent guys)
34 east 64th
http://www.streeteasy.com/nyc/rental/539085-coop-34-east-64th-street-lenox-hill-new-york

14 east 96th
$4400
http://www.streeteasy.com/nyc/rental/503873-condo-14-east-96th-street-carnegie-hill-new-york
a bit too close to the mason dixon line,in fact you are the line.

truth be told, addresses 1-50 East X up and down the park will be mostly coop, and those boards aren't fun. Neighbors there are not bashful either if you whisper levels are above church mice.

and let's look at the floor below's sale

09/14/2006 #6C $1,185,000 -0.8% $1,195,000 ↓ 2 beds 2 baths 1,150 ft²

a nitpick but should be discounted for actual street which gets a hell of a lot more traffic and lunatic cabs and others shooting to make the light into the park.

some more possible comps;
http://www.streeteasy.com/nyc/sale/365940-coop-3-east-71st-street-lenox-hill-new-york

http://www.streeteasy.com/nyc/sale/368352-coop-50-east-89th-street-carnegie-hill-new-york

one more

http://www.streeteasy.com/nyc/sale/368352-coop-50-east-89th-street-carnegie-hill-new-york

Nice place, I think it is priced appropriately. It will sell for over $1.15M.

sorry for 50 east 89th wanted to show another unit's sale

06/25/2009 #7B $850,000 -5.5% $899,000 ↓ Sold 2 beds 2 baths
http://www.streeteasy.com/nyc/sale/329488-coop-50-east-89th-street-carnegie-hill-new-york

It's nicer than the comps. I was really interested in rental though. Tough to find a rental comp but I say 6k. Wouldn't pay over a million. Would have a hard time not being interested in the low 800s.

It may sell for 1.1mm but not to a bear haha. Could get to 800k over two hard years.

"The issue as well is of you want to live like that you can't find a rental with those fonishes. We do without the finishes."

Bingo. in this type of place, you can't rent the equivalent, which means renting always looks cheaper b/c you are comparing unequal spaces. obviously in new construction situations the comparison is apples to apples, so it is a much more meaningful comparison.

you are willing to make compromises on finishes, many are not.

yes, but....

still a relatively new phenomena. it used to be if you wanted high end finishes, you either dipped into your own savings or took out a home equity loan....lived through the aggravation, enjoyed your improvements and even if you had the worst taste in the world, the natural appreciation of the property almost always paid for (and then some) your improvements.

the question will be as this market stagnates, how much will people still be willing to pay for their own improvements and in terms of resale other's improvements.

Printer I am making adjustments to the 'imaginary' rental. Without those finishes the rental price is $5000. With them, I am guessing $6000. With $2000 in maintenance I am rounding up to $50000 in net income to the owner (from rental savings). I am willing to cap that at 5 to 7%. On this basis, prices in the $700-$1mm can be entertained. I am still among the bears here who think the value is not there at $1.2mm. I cannot sit with 3-4% cap rates. Others can. Maybe someone pays $1.1mm for this tomorrow who knows.

What this demonstrates to me is that there is clearly air left in this bubble that has yet to disapate.
How slow...how long is the question. For sure never as fast as one would like.
All compasses point south.

Its so clear, it scares me. I am worried it flatlines here for 15 years while incomes and rents catch up.

Rhino, do you mind clarifying your cap rate calc, just to make sure we are all evaluating it the same way. Is that $6,000 - $2,018 maintnance = $3,982 NOI/month. Annualized at $47,800. Which then gets to $956k at 5%. Is that the right calc? (I have heard people do it different ways, so just curious how most people would look at it.)

FWIW, I'd agree with the $6k

I think this is a good comp on the sale side- and maint is lower, apt is bigger, but location is almost but not quite as good

http://www.streeteasy.com/nyc/sale/378204-coop-40-east-88th-street-carnegie-hill-new-york

On the rental side I would agree - $5,500-6,000 - I've seen 4 East 89th street similar size rental at $5,200- but its a post war not pre war- not nearly as nice as this building.

i guess my point is more that $6k is a theoretical price - can you actually find that apt?

Right calc, good comp. On the comp, interestng that a deal fell through at $1.25mm. Banks are tougher, and we are working through the best qualified, most optimistic buyers.

Printer, I probably can't find that rental. The issue is, I believe cap rate is a useful analysis, and therefore I am willing to use an imaginary rental price to work within my calculation. If your point is that certain apartments are tough to find in a rental, then I would agree. Nevertheless, I choose to deal with the shortcomings of this rental market until the price of such or more suitable apartments become available to me at prices I beleive are fair...or until such time as I win the lotto. There may not be duplicates of this in a rental, but there sure are many empty post-war condos that are pretty nice that should become increasingly negotiable on rent or purchase.

Here is a UWS example, and it is an interesting comp for a cap-rate comparison.

High-floor 3BR. Listed in Dec-08 for $2.195, then price was quickly cut by 9% to $1.995mm. Looks like it sat on the market there for 5 months. Then it finally rented in May for $9,500/month (it appears the rental was confirmed on the Corcoran listing -- see link below).

With the maintenance taken into account, I believe this implies a 2.95% cap rate based on the final ask price, assuming $9,500 was the real number where it got rented. I'm not exactly sure what conclusions should be drawn here. But perhaps the right conclusion is that the owners preferred renting it for a relatively low return, rather than continuing to cut the listing price and chase the market down? Thoughts?

http://www.streeteasy.com/nyc/sale/368762-coop-40-west-72nd-street-lincoln-square-new-york

http://www.streeteasy.com/nyc/rental/499598-rental-40-west-72nd-street-lincoln-square-new-york

Thoughts:

* Market cap rate seems to be 3.5% on asking prices, so they are still too high even at last ask.
* Denial is a long river.
* The owners aren't considering that even sold at a 3.5% cap rate their cash will likely earn a better return in assets as risky or the same return is assets less risky.
* This is what you call a "pent up seller".

Rhino, thx for the thoughts, and I think we agree on the general approach to evaluating these situations.

Where we perhaps disagree is about the proper return in this market, and what is the proper decision to make if you are a potential buyer/seller in these circumstances. I'll be the first to admit that 2.95% (as in this example) is not a spectacular return, to say the least, and that real estate is an inherently risky asset. You could currently do better than 2.95% or even 3.5% in a number of other choices that are probably safer.

BUT- practically speaking, if you are the seller, and you own a high-quality asset (as that apartment undeniably is), why do you aggressively cut the price down to sell at any price-- as long as you're not forced to so, of course.

Why not take the 2.95% for a year or 2, and then you're hopefully in a MUCH better position in a year or 2? At least give yourself that option.

So -- forced sellers will be forced to sell. If you're not forced to sell, then why sell now?

Just my 2 cents, as they say...

And P.S.: Of course the response I am expecting here is -- a seller WON'T be in a better position in a year or 2. They will be in a worse position, and the market will be much lower... It will be intersting to find out.

Yeah AVM you have the two sides of the debate correct. I frankly don't see upside over the next two years, but anything is possible. If these sellers are super wealthy and $2mm of real estate risk doesnt scare them, they can do whatever they want. Forced sellers will show there hand and I continue to think the number of buyers is being exhausted faster than it is being replensished (through new wealth creation). This said, I am a latent buyer, and I dont need to make new money to buy if I thought the value was there. How many more like me exist I dont know. I still think you want at least 5% cap rate. Where does that put this place? You didnt put all the numbers up and I dont want to do the algebra.

I don't have a calculator in front of me either, but 5% puts it a whole lot lower. Agree with you that if the market does indeed move to 5% cap rates, then prices are still going considerably bit lower from here

That's a tautology.

True :)

Rhino, exactly. You can't live in a theoretical place. And someone who is unwilling to make the quality trade off you are willing to make, will be sacrificing return on their money to live in the higher quality space. Which makes the rent/buy comparison somewhat meaningless in this example. Clearly for a generic postwar, avg condition place that one can rent or buy, or a brand new condo, the rent/buy cap rate analysis is much more meaningful.

it is nice - 50% down, yowsa.

Yeah that isnt going to help the resale.

"Which makes the rent/buy comparison somewhat meaningless in this example."

People have to make judgement calls all the time. Adjustments for finishes doesn't render the analysis moot for any but the most dense among us. 12 East 86th is very comparable around the corner. Sure these people put a personal touch into their reno, but honestly if you think that makes rent/buy "somewhat meaningless" you are wrong. Besides, its either meaningless or its not. Even your choice of words makes no sense. Is it "less than perfect" sure. But there is no such thing as a perfect comp in real estate. Every unit is unique. So par for you, no fucking sense.

mmmmm howz about same line unit 1 floor apart? One is a rental, one is for sale... COMPARABLE enough for you printer?

Rhino86.. ditto...

w67/Rhino - as I clearly stated, there are situations when very comparable places are available for rent or purchase. this is not one of them, which even Rhino admits as he says that the $6k/month apartment exists only his imagination.

If he wants to live in a mint condition pre-war place withing a block of the park, he'll have to buy it - he can't rent it. Theoretical pricing is great if you're into mental masturbation, but its meaningless in the end. Ironically even Rhino himself, at some level, understands this, or he wouldn't be so obsessed with trying to find a place to buy because he knows he can't rent it.

There is a consumptive aspect to real estate, not everyone is willing to live in a lower quality space even if it is the financially logical thing to do (and I'm not talking from a budgetary standpoint, I'm talking RoR, etc.). and for many people, they are willing to spend that extra money. For you its not worth it, but for others it is. and its important for you to understand that, because you are not the only operators in the market - you have to have a better understanding of what they think to factor in where prices can go.

I understand this situation has particulars like coop, location, finish, etc - but barring all issues is the math just as simple as (Potential rent - maintenance/taxes) / sale price? What are you proposing is the acceptable level for the purchase?

Sorry - that should read (Potential rent - maintenance - taxes) / sale price

"if he wants to live in a mint condition pre-war place withing a block of the park, he'll have to buy it - he can't rent it."

you still don't get it. it used to be that you could live (buy) in a place like this and be assured of a return on your exit. now...who knows?

sure return = easy decision.

who knows = caution.

the difference is not between renting and buying. the difference is between certainty and uncertainty.

you rent it's certain. you buy....who the hell knows.

i love all the posters that say "well, if your time horizon is 5-10 yrs, etc." grow up, your time horizon changes based on circumstances beyond your control. unless you are independently wealthy. and even then -- look at the bernie losers.

printer.. when in the great haze of beginning love you find your girl is a complete "shoe fanatic" it's sorta cute and the sex more than makes up for the other shortfalls... 10 yrs later as you are running your fingers thru the yellow pages under divorce attorneys... that sheo fetish is a royal pain in the azz in your estimation.... me thinks we are in the "divorce" portion of the NYC RE bubble....

"If he wants to live in a mint condition pre-war place withing a block of the park, he'll have to buy it - he can't rent it."

a) I agree to a large extent to cc's point on the above
b) It's not true anymore as it used to be: with the phasing out of RS, smart landlords are putting higher end finishes into such units because they know that's what it takes to draw quality tenants these days. In fact, I think you can't both argue that it has become a renter's market, high end renters have a good deal of leverage over landlords, but landlords aren't putting reasonably expensive renovations into higher end units, unless you also want to argue that all landlords are stupid and won't/don't act in their own economic best interests. In fact, in recent years, thee level of finishes in new rental buildings has immensely changed, moving much closer to 'condo finishes'.

Although the argument about "he'll have to buy it" holds water for a different reason than condition: if you only want to look at buildings from Madison to Fifth, there aren't very many which are still rental buildings as most of the better buildings got converted to Coop/Condo long ago.

Rhino86- here's another good comp I think- again, not pre-war though, but still comparable on size and location.

And this is a condo so you can probably rent for as long as you please.

http://www.streeteasy.com/nyc/rental/433694-rental-900-park-avenue-upper-east-side-new-york

Gross post war...1.5 bath vs 2.0. My point here of this thread is this, and comes with understanding that you likely cannot find an apartment just like 10 East 85th. You can look at the prices in 12 East 86th, make an adjustment for finishes, and reach a very low cap rate at the asking price of 10 East 85th. A broad range of value is $700k-$1mm. Maybe tighten it up and call it "800-something". That is not to say it is what the apartment could command today. That number is likely more. However, the competing apartment at 40 E 88 suggests $1.1mm is todays number. This also cements my resolve that I probably look away from purchasing until something like this goes down another 25% or so. Actually, its probably not big enough to suit my long term needs...so who knows.

Actually the apt at 900 Park has 2.5 baths. Look at the floor plan again.

Sorry for the oversight. Be that as it may, I think the 10 East is more desirable. If they can get $6000 for that, then maybe I need to conceptually bump that figure. The other issue for me is I am not interested in paying for furnishes in a rental. I'd rather be a decent clean rental of the same size in the same hood for $5000.

The only prewar apt but its not in PS 6 its more midtown is renting at $4500 per month at 470 Park. And its on a low floor and has not much light, but great details and good space.

12 east 86 is the best comp. 2 beds go in the 5's.

Or this could be a possible comp-
http://www.prudentialelliman.com/listings.ASpx?listingid=1128900&utm_source=Streeteasy&utm_campaign=corporate&utm_medium=listings

CC -i love all the posters that say "well, if your time horizon is 5-10 yrs, etc." grow up, your time horizon changes based on circumstances beyond your control. unless you are independently wealthy. and even then -- look at the bernie losers.

on that basis, no one would ever make an investment in anything where you need a long time horizon for it to bear fruit - a new business, private equity, public equity, etc. Everyone would only own t-bills or in an FDIC insured account. uncertainty is part of life, but you can't only plan for the worst case scenario - its just one of many.

Can someone please explain some of the math to me?

Imagine an all cash transaction. If its a coop, subtract maintenance from what you think the market rent is. Put that "income" over the purchase price. Then decide if that % return sounds good to you.

Printer, I can live near the park without mint finishes. I choose to do the latter because 3-3.5% is a terrible return. Period full stop. It does not get worse.

Another thing to consider with a listing like 10 E. 85th street, certain people with a particular taste and the money to back it up, will pay a premium for a AAA property. It may not meet empirical pricing formulas, but they will pay the premium to get what they want. They will pay what some of you on here would consider a very unreasonable/ unattainable rent; and they don't care:they want what they want.

Call this the x factor. I work with many rental clients who are not bothered by the 2 year limitation of a co-op sublease and would absolutely not consider living in a Glennwood rental at any price point or how many free months are involved.

"Another thing to consider with a listing like 10 E. 85th street, certain people with a particular taste and the money to back it up, will pay a premium for a AAA property. It may not meet empirical pricing formulas, but they will pay the premium to get what they want. They will pay what some of you on here would consider a very unreasonable/ unattainable rent; and they don't care:they want what they want. "

This is fine. But this will not hold up a market. This is why 10 East will likely get sold. However, its still getting sold at 30% less than it might have gotten before Lehman went bankrupt.

I agree Rhino and my scenario is true of just about any market. Some buy a Timex others a Rolex, after all they both keep "equally" good time.

10 East will sell in any market...But not at any price! I think they need to match 40 E 88 in the $1.1mm. I wonder what went wrong with the 40 E 88 deal at $1.2-something.

Printer, I can live near the park without mint finishes. I choose to do the latter because 3-3.5% is a terrible return. Period full stop. It does not get worse.

But why apportion the return to the whole purchase price? When you buy an apt, you are getting two things - the space and the finishes/appliances. The 1st one is, typically, an appreciating asset, while the 2nd is a depreciating consumable. Two identical apts, one finished high end the other low, the high end should have a lower RoR b/c a higher % of the price is going into the depreciating finishes.

in other words, tiles and appliances may make a place worth more, but they don't appreciate in value.

rhino: anything will sell in any market - it's all about price.

Yes that's a truism. What is my point? I guess its that finishes improve liquidity in a bad market? Something like that...

Printer, I dont think anything appreciates in value from here. And I dont think you are right. I think a welldone place goes up in value over time, on the basis of its whole market value, including finishes. Eventually it needs to be redone because they are out of style. I guess in some sense you do need to amortize the cost of redoing it eventually. However, in the meanwhile, I think a finished place appreciates on the base of the entire denominator...Just not from a 3% cap rate in a falling rent environment.

I dont think there is any other way to do it that apportion it to