Fun story from WSJ

Here's the SE listing:

http://streeteasy.com/nyc/sale/109720-condo-25-north-moore-street-tribeca-new-york

From ACRIS, he had an 80% 5/1 ARM interest-only ARM at 7% for 2 years, and then refinanced into a 4.6% 5/1 IO last year. Current forward rates put the expected reset in the neighborhood of 5.5%. Fraction of common spaces & a more recent listing put monthlies at $3425 or so.

So, it sounds like $3.1M purchase plus (say) $1.2M renovation plus $0.2M in wasted interest & monthlies during renovation for an all-in cost of $4.5M, or $1500 a sq ft after expanding the place by 150 sq ft during renovation.

He's all good. He put TWO plaster vulvas into the bedroom wall.... Thereby increasing his value his 100%. Maybe it would be better for PMG to have put a two plaster penises on the side of the bedroom wall. Never needs batteries.

No worries playerz, rents will increase by 30% per annum to infinity and beyond (echo, echo, echo).......

Infinity....

30% infinity!!!!!!

Echo

They should have installed a bowling alley. HAHAHAHA!

Inonada,

Thanks for the research.

So just to see if I understand, this guy put 20% down and financed the rest with an interest only loan - and then refinanced with another IO loan...

But I am a bit confused with your $3,425 monthly figure, assuming he is paying interest only on a $2.5M balance...

Can you clarify this for me?

Thanks!

w67th is on a roll!

stevejhx: You are a comedy pro. So it's hard to rate you fairly on the laugh-meter.

The monthly nut on the place is $10K after tax benefits and the $2M of equity he's put into the place. If he sells after 10 years, the amortized transaction costs work out to another $4K a month or so.

So now we're at $14K a month plus $2M in equity. This place is worth something like $3.75M today assuming it tracked the market. If it goes up 25% over the next decade (inflation), he gets back to $4.5M. If it treads water (which I think is likely), that's another $750K or $6K a month. So $14-20K a month with $2M tied up.

Now that $2M he was putting at risk late 2008 through late 2009, it would now be $3M in the stock market. At 5% annual increases going forward, it'd become $5M. At 10%, it become $8M. So $4.25M to $6.5M after-tax. Even at the low end of the range, the $2.25M translates to $19K a month over 10 years.

So this place is effectively costing the guy $35K to $40K a month. Call me crazy, but at those numbers I'd rather rent something at $30K a month and watch my rent rise to $35K to $40K over the next decade. I can assure you, at $30K a month you'll be getting a lot more than a 3000 sq ft window-challenged cave on the 2nd floor in TriBeCa.

So let's say

Memito, the common charges and taxes are $3425 a month. As this guy is probably under AMT, the taxes are not deductible.

Both loans were for $2.48M, and the second was a refi after the prepayment penalty period on the first expired. I assume the added equity of the $1M+ renovations brought the LTV back up for the refi.

I slightly messed up in calculating interest, common charges, and taxes of $10K because I forgot only the first million is deductible. Fixing that error increases his monthly nut by around $2K to $12K.

So $12K a month out the window, plus another amortized $4K of transaction costs, plus tying up of $2M cash during the one of the best stock market windows any of us will ever see.

As always, Ino, you neglect lifestyle issues. He would never have rented a 30-40K apt because that is crazy when you can buy for less and he would never have dreamed the analysis you just gave. So he either would have rented a dumpy apt or continued to impose on girlfriend. Girlfriend would not have put up with dumpy apt or enabling a lounge lizard so he would have lost the girlfriend. A huge non-accountable loss.

However, after a decent interval, in the new man-cave that he OWNS and DESIGNED to his own very personal specs, he can dump the girlfriend and get a new, better model (pun intended) that matches his deign specs more closely. And that is, as they say in the ad.........priceless.

>better model (pun intended)

Pun understood. You are one funny girl! Congratulations!

I stand corrected, apt23.

Great design work from my friend Matt Bremer -- an architect I highly recommend to anyone who wants thoughtful design, whether modernist (like here) or classic.

ali r

so, like, you buddy fletcher and matt bremer all hang together??

with all the rest of your esteemed harvard friends

funny you ended up the key sherpa??

it's a beau day up here in park slope today

It's a cool apartment, but I'd never spend that much for just one bedroom and absolutely NO cross-ventilation.

Wbuttocks is in Park Slope to visit his "girlfriend".

Yeah, I like the design too. But that's whistling Dixie while Rome burns. (I gotta trademark that.)

To each his own and all, but to me it looks like he paid a Porsche Cayenne price for a Lexus SUV. Then to rationalize the disconnect, he put in a Ferrari engine so that now he'd have an SUV with even more oomph than the Porsche. But buddy, you really wanted a Lexus SUV with a Ferrari engine??? Why didn't you just buy the Porsche?

Or better yet, just lease the Turbo version for half the cost. You're not gonna want it in 5 years anyways.

Definitely trademark it. Because a google search of that exact quotation shows only 25 results, including on some unsavory topics.

"Memito, the common charges and taxes are $3425 a month. As this guy is probably under AMT, the taxes are not deductible."

Pure speculation, but I'd suspect this guy's on the other side of the AMT. He's likely earning enough that he's back to paying in the 35% bracket, in which case the real estate tax deduction is both applicable and somewhat more valuable.

You think he's earning over $1M a year? Maybe, but I'd figure he'd want windows soon enough at that rate of wealth accumulation.

In any case, it'd make a $580/month difference.

Also, signing up for a 7% 5-year ARM: not the sign of a super-comfortably-affordable purchase.

matt's a Yalie, actually.

"key sherpa" -- I like that a lot.

ali

Eh. With the numbers we're talking about it could be $800-900K and still be on the other side of the AMT for a single guy, although there's too many variables to make it easy to calculate. I agree that the mortgage is a sign that this may not be that comfortable, but on the other hand it sounds like there was at least a million in cash left over for the remodel after the original purchase, so he wasn't exactly scraping the bottom of the barrel with the initial financing either.

Inonada: one quibble with that, don't assume someone who's renting would have put their savings in the stockmarket. Totally over-improved apt, and many better apts in the 'hood that he could have rented for 20k+/month.

>Inonada: one quibble with that, don't assume someone who's renting would have put their savings in the stockmarket.

A constant fallacy that inonada has made.

Jordyn, from numbers alone above-AMT would have seemed entirely plausible. It's just the cave apt that has me questioning why he wouldn't simply pay another million or two, waiting on a couple or three years of income, to carry him through an apt with actual windows. Who knows, maybe it just doesn't matter to him.

nyc10023, I grant you that I was going for maximal effect.

But...

Imagine you're 30 and single. You've got $2M to your name. Your killer $15K pad and other high-wheeling spending amount to $250K a year, and you're socking away another $350K a year (using jordyn's $1M income number). You have no outlook on using that capital to buy because you figure the disconnect between a $15K rent and a $4.5M buy is going to take a while to settle. Equities crash, Uncle Buffett writes his once-a-decade article telling you to go all-in as he is doing. Your rent drops to $12K, now you've got a $2M warchest that's being added to close to $400K annually. At age 30. Living in a dream apt with the ability to cut your spending by $150K on a dime while still living very well. If you can't commit your cash at that point, then when? Do you just sit in cash for the next 35 years and watch inflation eat it all away?

Inonada,

This guy is a trader who made a ton of money riding one of the biggest overall commodity booms in decades and then decided to buy a dark TriBeCa cave for $3M+ and THEN added another $1.2M+ to renovate it.... On top of that, the use of interest only loans is very suspect....

I am sorry, but unless he comes from some seriously rich parents and or has ten million saved up in reserve, this sort of purchase is a foreshadowing of an inevitable crash in his young trading career - which is common regardless of irrational and extravagant purchases traders might make.

It wouldn't be crazy to predict that this place will be on the market in 2-3 years and might go, in today's prices, for around $3M or even less.

Sorry but I don't see how he makes it out of this space net positive on the transaction.

Not close....

Inonada: I know it's hard to believe that there are people out there who don't listen to Uncle Warren. But, there are those of us who listen but are slow to act :) I'll grant you that a single 30yo will invest his $ differently from 40-something marrieds with children. I do know a few people who've been in cash for a looooonnng time.

Memito, I don't think the guy's gonna crash & burn or anything like that. The IO loan is probably part of a strategy: remember this guy is a trader, and he may be figuring that an IO loan is a good way to maintain leverage over the years. Nevertheless, it does seem like an unusual way of spending $4.5M.

nyc10023, that was part of my point. The theoretical renter version of this guy can handle very large risk relative to the 40 yo with kids. If the $2M in the 2009 stock market becomes $1M, who cares? His cash-flow will get him back to $2M in 3 years. And he can put in that money at a lower basis. If he loses his job, who cares? He's 30 yo with $2M and simply downgrades to a 1BR like the rest of Manhattanites. His "liabilities" (money he'll need to spend) are low & highly variable, so he can afford to risk his assets. For a 40 yo with kids, downgrading to a 1BR not so easy; higher costs because kids gotta go to their overindulging private school; gotta save for college; family trips cost 2-3x as much; save for college; etc. If all your income is spoken for spending-wise, then that $2M is not "play" money. It's shit-hits-the-fan money.

On those who have been in cash a long time, I'm guessing it's "scared" money, right? Meaning their income minus their spending adds relatively little to the cash pile, or there is expectation / worry of being in that boat in the near future.

First, let me break the news to you... just b/c the guy is a "trader" doesn't mean he has a clue how to manage any and all risk.

It is a very suspect strategy, with rates at rock bottom, to put on an interest only short-term loan... it implies that he thinks that he will be able to sell the apt if he decides not to refinance - but the problem with that is if the interest rate environment has shifted against him, the odds are that the apt's value will drop as well. It is a no-win scenario if things go wrong - you pick it: increased interest costs and/or lower resale price.

Second, just b/c he's a trader today doesn't mean he will be doing it forever or even tomorrow... Getting involved in a $4.5M+ apartment that most likely won't sell for 70% of that and doing questionable financing really makes me wonder if this guy has gotten lucky being aggressive and bold with his trading and if that luck will eventually run out.

Overall, it just wasn't a prudent purchase... and raises an eyebrow as to how much longer this guy is going to be trading...

But then again, if the guy has several million in the bank and/or can go running to a rich daddy for help (like 80% of people that spend this sort of $$$ on bad apartments can), then all of this is moot.

People are clueless and are trying to equate this decision against their 'normal' lives. This guy is a head energy trader at JPM, and is pulling down at least 5mm-10mm a yr for the past 3-5 yrs...he was ranked one of the top traders under 30 in 2007...i don't know him, and he is most likely a douche, but if wants to spend 3-4mm on cave, good for him.

The potential loss on this place is meaningless, and is equal to someone making 300k yr losing 30k on their apt.

The best part is the kiss at the end of the video.

E.g., the reaction here when a billionaire (a Tisch) had a $30M paper cut on the value on his 2E67th apartment. People were acting as if he was contemplating the gas pipe because of that drop in the bucket.

I'm perfectly willing to consider that this guy might have pulled down $5-10M a year for the past 3-5 years as you suggest Apt_Boy. That would put his after-tax and after-spending net worth at somewhere between $8M and $25M. And that net worth would be increasing at a pace of $2.5M to $5M a year.

The part that doesn't add up for me, and I may simply be too picky for your tastes, is why he wouldn't just spend $6M get something with windows and light. I appreciate the notion that one eventually reaches their limit in terms of how fancy a home one might want regardless of wealth, but whose limit ends at a low-floor apt like this with windows just at one end?

My issue is not on the loss he may or may not take on the apt: in all likelihood, it won't matter just like your $200K loss on your "normal" apt won't matter to you. Rather, why not live in something nicer?

The statement "Rather, why not live in something nicer?" is so subjective a reply can not even be made. In the video, the guy says he hates natural light, whatever, is it true or is he saying it to justify his purchase? Maybe his girlfriend is a vampire and needs it dark or maybe she will only agree to suck his weiner if there is no chance of someone seeing her...who knows, it doesn't matter, the guy is happy, he has a girlfriend that would not give him the time of day without a nice apt. and his ego is boosted by being in the WSJ...so its all good