The return of the $1 co-op?

Sorry- the link to the listing seems to have been left out
http://www.streeteasy.com/nyc/sale/370779-coop-301-east-63rd-street-lenox-hill-new-york

no, and no again

JohnDoe, A few days ago I posted in regards to WillyB may we see the return of property for sale at $1. Do I smell plagiarism? Joking, great minds thinking alike. Giving all thats going on, $1 hey, you never know.

NO, you are NEVER going to see $1 co-ops! Stop being delusional!

I'd be interested if people could discuss the reasons why this might or might not happen. Here are a few thoughts:

1) With respect to his particular apartment, maintenance is about $1600 for an alcove studio. The building's situation (land-lease that just got renegotiated up) was discussed in another thread and in a post by Toes on urbandigs. Suppose rents for similar apartments fall to below $1600. Where would one expect this apartment to trade?

2) If maintenance exceeding rent might lead to extremely cheap apartments (e.g., $1 or $10K), two questions are (i) how many places might end up with maintenance higher than rents and (ii) what factors might increase the number in (i). As for factors, one can imagine an impact from a combination of (a) higher RE taxes and (b) lower rents due to increased unemployment and decreased quality of life in certain areas.

Of course, one wouldn't expect this to happen for most places, but especially for buildings with high monthlies, is it that unrealistic? I don't think you have to go that far back to get to the point where an alcove studio at 63rd and 2nd would rent for less than $1600.

I don't think that studio is going to rent for less than $1,600. It's in a prime location and in a nice building with decent ammenities. The only studios I expect to see below $1,600 a month are those in walk ups.

ANd even if the rent does fall below $1,600 for that stuio, I think you will be able to sell it to an uneducated buyer who thinks he is getting a steal since hardly any apartments in Manhattan are under $200k.

JohnDoe if you believe in something continue to believe. Greed a MF'er. Giving the state of the economy you never know. Property for sale at $1 took place while Mayor Koch and Dinkins was in office history does repeat itself. The Edge, Toren, Northside Pier and all of the others I did not mention will probably be owned by the Gov't. If property does go on sale for $1 that will really be the time to buy and if you don't buy at that time you will be priced out forever and that is one knife I won't mind catching.

Alpine - Rents for downtown doorman studios and 1 bedrooms 1395(hanover) and 1700 (I think its maiden)

http://www.streeteasy.com/nyc/rental/441679-financial-district-financial-district-new-york

Houses in Detroit are selling for $1 as we speak. If apartments in Manhattan sell for $1, then we will likely beocme another Detroit. And if that happens, I'm outta here! No way will I buy an apartment for $1 if that happens!

And for those who don't believe me, here you go:

http://www.realtor.com/search/listingdetail.aspx?loc=Detroit%2c+Michigan&mnp=1&mxp=10&sid=d7e08d0fcc924386aff7f87ad10019fb&lid=1102875227&lsn=1&srcnt=6

http://www.realtor.com/search/listingdetail.aspx?loc=Detroit%2c+Michigan&mnp=1&mxp=10&sid=d7e08d0fcc924386aff7f87ad10019fb&lid=1104263529&lsn=3&srcnt=6

"ANd even if the rent does fall below $1,600 for that stuio, I think you will be able to sell it to an uneducated buyer who thinks he is getting a steal since hardly any apartments in Manhattan are under $200k"

No. People are smart enough to add up Principal + Interest + Common + (Other). It's not like common charges are unknown until closing time...it's all there in the listing. I'm not saying its going to get that bad in Manhattan, but to think high maintenance co-ops will be saved by uneducated buyers is wishful thinking.

If it dows happen, $1 properties will be made available in the neighborhoods that emerged since they have an excess. A lot of folks are saying they will move out of NYC if this takes place good NY don't want you anymore. It happened before and can happen again.

Looks like the studio that was asking $195k at 301 east 63rd street just went into contract. Will be very interesting to see the sale price on that one.
http://www.streeteasy.com/nyc/sale/370779-coop-301-east-63rd-street-lenox-hill-new-york?email=true

Did Julia buy the studio? Hmmm.

I haven't followed all the links, but I think when you discuss things like this ($1 apartments), let's just get it straight that we're talking about the PROBLEM UNITS out there -- you know who you are.

We're talking about the brick-wall-facing places. During the boom, even those could get a buyer. But if you're the crappiest unit in the building, and if there's other units available for sale in the building or nearby, what's the bottom? What's the lowest that such a unit's price can go.

That's the frame through which I'm viewing discussions like this, along with the (otherwise sensationalistic-sounding) posts where people talk about 50% price cuts, etc.

Um, no...

> NO, you are NEVER going to see $1 co-ops! Stop being delusional!

There have been them in my lifetime. And on 5th avenue. And we never became detroit.

Its a bad deal. If you can rent the apt for the cost of maintenance, this apartment is worth nothing. It's worth negative nothing because why would you pay $1 for an apartment that would cost you the same money to rent (minus that dollar).

Actually no...... there is time value.

Its the reason an option to buy a stock for more than it costs now has some value.... its the potential profit that it DOES go up x the likelihood of going up. In the more direct example, you're trying to "lock in" that housing payment, assuming maybe rents go up more than taxes.

So, even if maintenance (after tax even) is higher than rent, the apartment itself can be worth something.

"There have been them in my lifetime. And on 5th avenue."

Well then you are a complete fool for not buying them. If you bought them, you would be a multi millionaire today.

"Well then you are a complete fool for not buying them. If you bought them, you would be a multi millionaire today."

And of course buying that loft in SoHo for $20,000 would have been genius too - It's always easy in hindsight. There's a reason those properties were selling for that much - there was no demand for them. Few of the people that bought them thought they wound end up the tremendous investments they did.

"Well then you are a complete fool for not buying them. If you bought them, you would be a multi millionaire today."

Yes, I am a complete idiot for not spending my allowance on 5th co-ops. Would you have lent me the maintenance that cost more than both my parents made before taxes? I could have added a paper route.

Alpine, why so angry?

alpine,

you clearly know that apartments were given away in nyc in the 1970s--lots of apartments, in some of the best buildings. why do you act as if it is complete news to you? and why do you say that others were idiots for not taking those apartments--did you take them?

No, he apparently waited until prices were at their peak to buy...

I was not alive in the 1970s.

wait--you own a home in bergen county and you were not alive in the 1970s? what could have possibly possessed you to buy a home in bergen county in your 20s?

lol

"investment"

I did not want to deal with a co-op board and condos were out of my price range. I looked at the outer boroughs, mainly Forest Hills, but all the houses were old dumps. There was virtually nothing built within the least 20 years.

There are far better choices for condos in between Forest Hills and Alpine, NJ.

Hell, most of Brooklyn.

Yeah, but prime Brooklyn (Park Slope and Brooklyn Heights) are very expensive. And I am not comfortable buying in a recently gentrfied area like Williamsburg, DUMBO, etc. because those areas will fall the most during a downturn.

I just can't believe that you had an excuse for every other location, but Alpine made the cut...

sorry.

I grew up in lower Manhattan and quite frankly wanted to leave the city. All of my friends got to grow up in big houses in the burbs and I was always jealous of them so I wanted to try the suburbs once and for all.

Looks like maintenance on Jr. 4's in this building are now up over $3400. Does a Jr. 4 at 63rd/2nd really rent for much more than that?

http://www.streeteasy.com/nyc/sale/372999-coop-301-east-63rd-street-lenox-hill-new-york

jr. fours in that neighborhood do not rent for ANY more than $3400, you could almost certainly find one for less.

In that case, how do you value an apartment like this? Can it really be worth much more than $1?

you don't value an apartment like this. it has no value, or, to be accurate, a negative value.

I guess it would depend in part on whether you become personally liable to pay the maintenace when you buy, or if you could just walk away at some point. If the former, the apartment should have a bit more option value (e.g., it might be worthwhile to even pay more in maintenace than equivalent rent for a little while in order to capture the upside if it appreciates.) Of course, this value is higher if you can cut your losses by just walking away if, e.g., comparable rents drop to half of maintenance.

but john doe, how is an apartment going to appreciate if the maintenance alone is higher than comparable rents?

Longer term, if rents go up faster than maintenance, so that, say 5-10 years from now, rent for the unit is higher than the maintenance.

johndoe. think about it. you are willing to make a down payment, risk your capital, take out a mortgage, and make mortgage payments every month, all for the privilege of paying more in maintenance than you would have to pay to rent the same apartment. and this in the hopes that after doing this from ten years, rents will rise above the cost of the maintenance, AND above the cost of your mortgage, AND compensate you for the opportunity cost of the down payment, AND compensate you for all those maintenance payments you made over and above the cost of renting?

do you really think that's a good plan?

i would also add that you are taking on the added risk that the entire building goes into some sort of default. this is not a good situation to get yourself into.

happ:
"AND above the cost of your mortgage, AND compensate you for the opportunity cost of the down payment, AND compensate you for all those maintenance payments you made over and above the cost of renting?"
1. There is no mortgage cost, he bought it for $1. Hopefully paid cash. 2. no opportunity cost lost on the down payment because he paid the full $1. Now is the good part. The extreme is he buys every unit in the building for $1. Then he controls them. Cut all services possible and convert to a market rate rental building. Sell units if the city recovers in our lifetimes. I like that plan. I had an opportunity to the same thing in 1990 on Jane St in a 6 unit building. Was too chicken shit to take the chance. Big mistake.

Question wasn't whether it's worth paying asking for, but just whether it would be worth more than $1, and if so, how much. I'd certainly pay $1 and take the risk of spending some time paying above equivalent rent in maintenance. Pretty easy to see paying $10k-$25k too. $250k? Seems too high. I dunno, maybe it would be worth $50-100k?

patient,

first of all, he did stipulate only paying a dollar. that would still be a bad idea, but a different question. second, the option to buy the entire building for any price, let alone for $1, has not been presented. if it is presented, come back and offer your suggestion.

that should read 'he didn't stipulate only paying a dollar."

JD: Either way, you running the right scenarios. There are more people than most care to say out loud, that are Sooooo fucked in their personal finances as relates RE. These situations will require extraordinary patience to exploit. Some situations will be once in a lifetime. Explore them all, wait, learn, wait, then force their hands. This is greatest time in the history of ever to be cash rich!

According to streeteasy, 7J sold for $100k in August 2005 which really doesn't make sense considering I looked at a few of the sales in this building from 2006, and stated maintenance on those listings was in the $1.40-$1.50 range. Looks like sales in that time period (2005-2006) were anywhere from $650-$800 psf range. Now that maintenance terms (from lease re-up) have more than doubled- anywhere from $2.70-$3.50 psf or so on the current listings, the $509k ask is beyond ludicrous. That $2 delta or so on maint charges for 1,000sf breaks out to incremental $24k in maint (w/ same tax & deductibility rates) per year, or at a 6% cap rate (prob aggressive), value destruction is on the order of $400k.

Checking rental prices on surrouding buildings where there are many $3,400-$3,800 units that are ~1,000sf, at a 6% cap rate (pick whatever # u want), you would expect those units to sell around $650k-$700k, so i don't know how you could justify anything over $250-$300k right off the bat. Obviously, that's just step 1 of a VERY basic analysis but there's 20 diff ways to do it and I'm guessing once accounting for all mortgage carry, tax, transaction costs, the value of that apt only goes down from there

How does maintenace get that high? And how common are such scenarios?

Toes had an interesting post on the backstory on this building a few weeks back on urbandigs

http://www.urbandigs.com/2008/12/landleases_when_worse_than_the.html

> you don't value an apartment like this. it has no value, or, to be accurate, a negative value.

Again, there is time value. An underwater option is not necessarily value-less.