$8.7 Million for a Condo You Can Only Live In 120 Days a Year

I almost get the math that would justify the purchase of a hotel condominium listed at Trump Soho (warning: the hotel website has music) for just over $8.7 million. As a hotel condo, you are allowed to use your unit for no more than 29 consecutive days in any 36, for a maximum of 120 in a year. The rest of the time it is added to the rental pool and offered to hotel visitors.

Owners of hotel condominiums still pay condominium and taxes all year long. In essence, it’s exactly like a rental property that you buy and hand over to a rental pool to manage. You get a cut of the profits and the management company takes a bit. As it’s in a rental pool – revenue is split between all units each month even if they all weren’t rented.

If the general rule of thumb is 1/16 of the price of housing is what you can normally rent it for so let’s assume a more generous 1/15, and add in an 81.5% hotel rental occupancy use and the room should go for.

Because there are room rates online for the studio units (425 sft) which match some of the available units for purchase, let’s try the math. This unit lists at $995,000.

$995,000 / 15 / 0.815 / 245 (days available) = daily room rate required. That works out to about $332/night required rental rate. Currently the hotel is offering ~435/day ($1.03/sqf/night) for room bookings, based on blended rates listed for units of about 420 sqf on the Trump Soho booking site.

Ok – that seems plausible that there might be an opportunity for the owner to actually make some money on the purchase. Don’t forget the owner is paying a fixed price (taxes, management, and hotel operation) no matter if the unit is rented – while the return from the pool is affected by the occupancy and average nightly rate. A 31% mark up over required daily rate might be enough to cover the costs of operating the hotel and miscellaneous costs.

All in all hotel condominiums may not be for the faint of heart. One would assume that if all the numbers where known, the management company is likely putting the following offer forward: the purchase should return about 4% (much like a good bond) with the bonus of 120 free days of living in Manhattan.  I really think that’s how simple the formula likely is when trying to sell the units to investors/part time residents.

So that $8.7 million unit – should return about $29,000/month in revenue, and cost (thinking that one couldn’t rent for less than a week such a large unit) about $17,000/week.

Great Salesman Barnett Asserts 10,000/sqf is 20 to 30% Cheaper than Market

Real Estate is usually the ultimate in capitalist negotiation, and ensures the price of the property reflects the true market value at the point of sale. The agent and seller are negotiating for the highest possible price, and the purchaser looks to capture the best property in their mind for their cash. In most cases the market has comparative units that can be used as benchmarks for price.

A sale completes only when both sides are happy with the value they receive from the transaction.

So when I see Gary Barnett, who just raised the price of a yet to be developed penthouse from $98.5 million to $110 million in the pre-build One57, says his properties are still 20 to 30% undervalued, well, I just have to chuckle. Anytime a seller tells you that by purchasing a property you’ll instantly increase your wealth – that the property will miraculously increase in value because you hold it – you have to just step back a minute.

Mr. Barnett has no interest at all in granting you any bonus value. It’s his job, his best interest, and it’s his positive (yes, a good trait here) greed to maximize the revenue on his sale. When you purchase his property (or purchase any property, from any realtor, no matter how inexpensive or gaggingly decadent) the property will be worth Exactly What You Paid For It.

The only possible case where the property will be worth something different than you paid, is if you paid too much. The only side of the negotiation that has the best information about the property is the seller. They hold more cards than you. They know, say, if the marvelous property that you bought with a fantastic view has a new development slated for build that will completely cut off that panoramic cityscape in only a few years.

It’s just lovely to know that the same cheezy realtor lines that I get at the other end of the market (yeah, I don’t have $110 million for a condo sadly) are the same lines at the top. Barrnett also describes the property as “there will be more room to increase prices in the near future” and “prices in the building are still extremely conservative given where the market is today”.

Ahhh, it’s the same pitch at every level of the market. “Buy now, it’s underlisted, and the market supports higher prices, but only if you buy. right. now.”

Foreclosure Mill Company Closes Down – Employees Already Received Training for Life without Homes

The Steven J. Baum law firm held some timely staff training exercises* at the end of October. During this training, employees were encouraged to understand the role of homeless people. The office was transformed into a row of foreclosed homes, and staff applied fake dirt to their faces, pretended to drink cheap beer from paper bags, and hold signs that claim fiscal innocents for their destitute state. Every department of the law firm used the staff training exercises* to understand the plight of the troubled homeowners they made their living suing (pictures here).

Good thing too – because this foreclosure mill (ok, I almost wrote puppy mill, don’t know why this law firm seems so morally similar) is shutting down, all 99 full and part time employees are being booted to the street.

To quote Steven J. Baum himself:

Disrupting the livelihoods of so many dedicated and hardworking people is extremely painful, but the loss of so much business left us no choice

What was the cause of the loss of business: $2 million settlement of charges the firm mishandled mortgages filings, DOJ investigation, multiple class-action lawsuits, filing error-filled “robo-signed” documents, and having a practice described as:

Steven J. Baum PC appears to be operating in a parallel mortgage universe, unrelated to the real universe,” the judge wrote in that May decision. “Next stop, the Twilight Zone,” he said, quoting from Serling’s TV series about science fiction and the supernatural.

These actions resulted in the banks (including the big two – Fanny Mae and Freddie Mac) refusing to use his foreclosure services. Oh well. Guess with no income to pay costs, now he’s foreclosing on his own company.

* By “staff training exercises” I mean on-premise Halloween celebrations and dress up, and by “understand the role” and “understand the plight” I mean ridicule, make fun of, and mock.

Recession Proof-ish Condos: Buy In Financial Districts

I’ve mentioned many times that the condominium market in financial centres will always retain more value in a recession and bounce back quicker. New stats out of NY continue to show this trend.

Top end condominiums (the top 10% by price in any quarter) are down a very modest 16% from their height in Q1 of 2008 (4.17m vs. 4.99m) – where outside the financial district we are easily seeing values that have plummeted 60%, and in rare cases 90% (You can get HOA property for as low as $52 per sq. foot in Las Vegas).

This quarter and the last quarter have the highest number of 10m+ units sold in Manhattan. 12 completed sales of units 20m+ occurred in the three months ending September 30^th (here’s one).

Finally, One57 developer still believes he’ll sell out his development – the tallest residential building in Manhattan when it goes up – at prices ranging from $3,500 – $8,000 a sq. foot (up to $91,425 a sq. m.).

It’s nice to know the 1% are still buying, and buying, and buying.

Little Sympathy for Residence Fighting Development for Mentally Challenged Homeless

As a start, I have a condo that is 2 block from a stroll for prostitutes, 4 blocks (the other way) to a homeless shelter, and there’s a long term facility for homeless going up as well within that distance. And I’m ok with that.

Hang with me then, when I indicate little patience for residence who fight the inclusion of a shelter for mentally challenged homeless in their community – and let’s be clear – Astoria, New York, is a large community. Even in Council Member Peter Vallone Jr. challenge to the development he indicates that there are at least 8350 residence within one block. The shelter will house 50. That’s a .006% population increase. It’s nothing.

Having .006% of your population requiring special needs because of being mentally challenged should be considered part of your civic and community based care and support network. It should be something the community says “we live in our community, and every day our community supports and assists people a little less fortunate”. Civic pride, not civic shame.

Developer Sells “Panoramic Manhattan Views” Knowing He’s Building a Condo That Blocks View

I seriously wouldn’t mind working in the developer business – with a position to repair and rebuild the industry’s reputation. It seems like one of those impossible opportunities with no chance of success. I would love that challenge. People like Jamie LeFrak of the huge New York The LeFrak Organization would make every moment exciting and challenging.

As an upstanding developer, he specifically marketed 16 luxury apartments in the Shore Club condominium as having panoramic views of Manhattan. He did this while fully aware that he’s building a 32 story building that will block the view.

A court case brought by the 16 purchasers has been ruled in their favor for false advertising. They group has been awarded 3.8 Million in damages, interest, and another one million to cover legal fees.

P.S. – For Feng shui reasons, the Shore Club has no 2nd, 4th, 13th, 14th, or 24th floor – which means if you buy on the 25th floor you are actually on the 20th. That seems awesome – now you can have that 25th floor experience even with your fear of heights over 20 floors! [sarcasm]

A Condo you will never be able to afford – $98.5 Million USD

The tag line is:

Not only do you live at the centre of the universe, you overlook it

And for that right person who feels that they live (nay, are) the centre of the universe, there is now a condominium in construction that will have enough square footage to hold every cranny of your massiveness. The one57.

There are actually two (2!) of these apartments at this price – the 75^th floor 13,554 ($7,267/sqf) square foot, and the (for the more refined) 90^th floor 10,923 ($9,018/sqf) square foot residence.

I can honestly say that I don’t have the funds to live there.

Buy Condos Where The Financial Districts Are

I’ve picked the wrong profession. Alas, if my mother only wanted me to be a banker and read to me the unabridged version of Scrooge (where he doesn’t feel remorse), I coulda shoulda woulda been rich.

It appears that the majority of the super-rich, the top 0.1% (or top 1/1000), has a propensity to be from the banking sector. This group forms the largest job based income generation of the super-rich. Indeed, it should be hard to be poor for even when you mess up people will still give you $20.3 billion dollars as a reward.

Taking a slightly different story line – both Toronto, Manhattan and Brooklyn have shown tremendous growth in condominium sales, both regular cost (which still can be half a million and more), and the ultra-expensive.

Which makes me think – if the richest group of people are from the banking sector, and they have collectively almost 40% of the nation’s wealth, and they like living near work; then the safest bet for finding condominiums values that will perform better in the overall economy (they still go down in poor times, just not as much) will be in their neighbourhood. This likely explains the current condominium craze in financial centres – where condo sales and cost per foot2/m2 is setting new records, while outside of financial areas condo prices remain stagnant or drop.

We’re entering a new consolidation of wealth – and it will reflect strongly in the housing in the next few years. Condominium prices will perform above average in the financial hearts of the nation.

Beautiful Roof Decks Of Manhattan

In an earlier post I pointed out two condominium owners that had leased some land their unit overlooks, and converted it into a park (and gorgeous).

Just tripped over this listing of 10 roof decks in Manhattan. Also amazing in scope and style.

Roof decks are another thing (if only I was a developer with money to see some of the vision through) that should be mandatory in today’s day and age. There is certainly no reasonable explanation why a multi-story building should be built without green-space use of the roof.

Certainly, the penthouse suite(s) might object if it is a public space, and maybe there would be a loss in top dollar value, but developed successfully I think it could still work. For a public space, it could be isolated to a corner with tall walls or other barriers that would ensure both privacy and security.

In Canada Many Corporations Get Paid Before Banks and Taxes

Reading up on Condominium news from all over, this article in the New York Times talking about condominium corporations that vet purchasers caught my attention for numerous reasons.

Near the end of the first page is the comment:

In case of a default, the city is first in line to recover outstanding real estate taxes or other charges, followed by the mortgage lender. The condominium is third in line, and usually all it can do is file a lien against the property and hope that it will be repaid when the apartment is sold.

In Alberta, liens by the condominium corporation against a unit have first standing – that is above banks and taxes. There has been a very strong focus in Canada that the corporation should be given the powers to ensure the viability and upkeep of the common property. We have relatively lenient lien laws and the ability to foreclose and collect (it’s not simple, there is still a process, but it is a proven and supported process with case law). That has made the survivability of corporations much higher than in the US when owners default on paying contributions and special assessments.

This inability of the corporation to have the required standing and power to recoup outstanding HOA fees (in the US) seems to have triggered a very aggressive position by boards to keep out “possible deadbeats. “

… increasing number of condominium boards are hoping to weed out financially questionable buyers by requiring extensive application packages. Demands can include years’ worth of federal tax returns, detailed lists of all assets and liabilities, several letters of references, and even board interviews.

It’s not clear from the article if the corporations actually have the power to even ask for these documents or this process. They do have the power (which is not available in Canada as far as I know) to reject a purchaser if they (1) the corporation purchases the unit or (2) designate a different buyer at the same price. I get the feeling that it is from this right of changing the purchaser that they generate belief (which may be allowed legislatively) to challenge a person’s right to purchase in the corporation.

This ability to deny rights of purchase is highly concerning to me – and part of my concern is, I admit, not knowing the legislation. But what are the grounds that a corporation in NYC deny an owner – and do they even have to give a reason? Could we face a board that wants to keep a development all racially pure (whatever strain of race that is) and just buy the unit or appoint a new purchaser without reason? It is a concern that a condominium has the right to choose who can, and cannot, live in their building. In Canada, if you have the cash, and can abide by the by-laws (which can not filter on race, creed, or other human right) you can have the unit.

I once said that condominium are very very localized government. Could you imagine say a city that had the same right to deny purchasers to live in their city? That every resident had to provide financial stability documents before living there even if they can pay the price of the unit. How very unsettling.