Paying Huge Premiums for Back Bay Redevelopments – This Won’t End Well

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Paying Huge Premiums for Back Bay Redevelopments – This Won’t End Well

“We expect to see this pattern repeat itself in coming years as owners of these high cost units hit the exits.”

Property Spotlight – On the Market

  • 220 Boylston St., unit 1014/1016 – Holy Price Cut Batman!  – Offered at $3.725 Million
  • 166 Marlborough St., unit1 – Taking a Loss on Marlborough Street – Offered at $4.15 Million

Well Bought/Well Sold

  • 82 Mount Vernon St., unit 1 Will the Third Time be the Charm? – Well Bought
  • 54 Pinckney St. – Size Matters, Too Much Money – Well Sold
Paying Huge Premiums for Back Bay Redevelopments – This Won’t End Well
Boston Back Bay Townhouse
305 Commonwealth Avenue Boston Back Bay.

New construction sales in boutique Back Bay buildings often leave us scratching our heads. Buyers routinely pay substantial premiums over the prevailing market, with $3,000+/sf now commonplace. In our commentary, we often ask – how will the market receive those overpriced units when they come up for resale? A look at what’s going on with unit 2 at 305 Commonwealth Avenue gives us some insight.

By way of background, we did an in-depth review of unit 2 last November, so we won’t repeat all the details here (see “A Solid Back Bay Duplex, With a Lofty Price Tag”). We concluded that there’s a lot to like about this apartment, but we did have some caveats, most notably the fanciful valuation.

Source: PBL

305 Commonwealth was redeveloped in 2018 by Hexagon Properties LLC, the same folks behind the redevelopment of 29 Commonwealth and the nouveau ‘Quinn House club. Hexagon originally offered unit 2 for $10.9 million ($2,543/sf) in the spring of 2018 and ultimately sold it to the current seller for $9.5 million ($2,233/sf) in April of 2019.

Less than two years later, the unit reappeared on the market with an asking price of $10.9 million. After 157 days on the market and no buyers in sight, the seller did what many frustrated sellers do – hired a new broker and made a token price cut.

The marginally lower price didn’t help matters. Apparently the valuation reality is setting in and last week the seller chopped a million dollars off the price. The asking price now stands at $8.95 million ($2,115/sf), roughly 18% below the original asking price.

They’re Only New Once – Finding the Clearing Price

Is the lower price reasonable? A year ago the answer was probably yes. In today’s market, the valuation is more complicated. Obviously higher interest rates are weighing heavily on asset values, but at this price point, buyers aren’t shopping monthly payment. So what’s the problem?

For starters, we’d say that the seller paid a huge premium for the “new car smell.” Now, after four years of ownership, that smell is long gone. We expect to see this pattern repeat itself in coming years as owners of these high cost units hit the exits.

As we see it, the problem goes beyond valuation. The “600” brand new luxury condominium units that are currently hitting the downtown market (see our note The 600” – Ready or Not, Here They Come!) are having a profound negative impact on market liquidity. The competition for the luxury real estate buyer has never been more intense.

We’re advising clients who are looking to buy property to be extremely price sensitive; patience will be rewarded. For sellers, as they say on trading desks, don’t fight the tape. Forget what you paid and that nonsense that real estate values only go up – it’s a myth perpetuated by sales agents.

Unit 2 at 305 Commonwealth Avenue is offered by Gibson Sotheby’s. We’d be happy to set up a showing and walk you through our valuation analysis.

Property Spotlight

Batterymarch Group is focused on buyer representation, so the highlighted listings are not ours. These are our opinions, so take them with a grain of salt. We’re happy to set up showings of these properties, offer our valuation analysis, and assist with preliminary renovation budgets when needed.

220 Boylston Street, unit 1014/1016 – Holy Price Cut Batman!  – Offered at $3.725 Million
220 Boylston St. Back Bay

The seller of this 2,676 square foot three bedroom unit (it’s two units combined) at the original Four Seasons took a meat cleaver to the asking price last week with a 21% price chop. The asking price now stands at $3.725 million ($1,393/sf) after this latest price cut. The original asking price was $4.995 million ($1,868/sf).

This is a great location and it’s a real plus to have the space of two combined units. It’s now priced at a discount to where units have been trading in the building. It should be pointed out that this unit does not face the public garden which makes it less desirable to some people.

We smell a motivated seller, but in our opinion the unit is in need of extensive updating. We’d advise getting a firm renovation estimate before moving forward with an offer. When it comes to renovations, sometimes there’s nothing more expensive than a cheap condominium.

166 Marlborough Street, unit 1 – Taking a Loss on Marlborough Street – Offered at $4.15 Million
166 Marlborough St. Back Bay

Unit 1 at 166 Marlborough Street, a 2,925 square foot three bedroom lower level duplex, has an accepted offer. We normally don’t highlight properties that are pending, but the valuation caught our eye.

The seller bought this unit in mid 2019 for $4.945 million and less than two years later put it up for sale at a discount to what they paid for it. We’re not big fans of basement level duplexes, but this one is pretty nice with windows on three sides, decent outdoor space, and parking. 

Assuming they get close to their asking price, net after fees the seller will realize a 21% loss in just three years of ownership. Taking a loss never feels good, particularly on a nice property, but in many cases it’s the right thing to do, and we suspect that is the case here.

Unit 1014/1016 at 220 Boylston St. is offered by Marsh Properties, unit 1 at 166 Marlborough is offered by Keller Williams. We’d be happy to set up a showings and walk you through our valuation analysis.

Well Bought/Well Sold

82 Mount Vernon St., unit 1 Will the Third Time be the Charm? – Well Bought
82 Mount Vernon St. – Beacon Hill

Unit 1 at 82 Mount Vernon Street changed hands for the third time in as many years for $2.897 million ($1,642/sf). The unit, which is part of a two unit condominium redevelopment, is a 1,764 square foot two bedroom basement level duplex.

We previously highlighted this one, pointing out that the entire unit is basically below grade. In fairness the building is built into a slope and there are oversized south facing windows that look over a very nice private outdoor space.

We weren’t overly impressed with the level of finishes and the HVAC seemed noisy to us. We’re normally pretty unforgiving about basement living, and the unit turnover gives us additional pause for concern. But in this case, the value seems fairly reasonable for both parties. After fees the seller took a 12% hit to get out, which was probably the right move. We’re giving the advantage to the buyer, it was – Well Bought.

54 Pinckney Street – Size Matters, Too Much Money – Well Sold
54 Pinckney St. – Beacon Hill

54 Pinckney Street has a new owner, changing hands for $5.8 million ($1,516/sf). The house underwent a top to bottom renovation back in 2019. The renovation quality seemed ok to us, what you would expect in a speculative flip.

The house originally sold for $5.557 million in December of 2020, which we thought was way too much money at the time (see “We Smell a Hefty Profit”). Nine months later it was back on the market with an asking price of $6.45 million. Naturally at that lofty price the house hung around on the market for an eternity. After a few price cuts they landed on this deal.

This is a nice house in a great location. The price on the other hand is a different matter. We still think the 2020 price was way too high, so tacking on a few hundred thousand to help cover the sellers’ commission and fees – good grief!

Are you getting what you’re paying for?

$1,516/sf is a big premium to the average Pinckney Street single family house selling price in recent years. A bigger concern we have is that according to city records, 54 Pinckney is 3,364 square feet. The property was marketed as 3,825 square feet (measured by a third party). If we apply the city records, the property sold for $1,724/sf – that’s getting into Louisburg Square territory.

Calculating square footage is surprisingly complex – if you ask five different experts, you likely get five different answers. It’s important to be aware of square footage discrepancies between official city records and the marketing material. We’d say that the seller definitely got the better end of this deal, it was – Well Sold.

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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.

About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to real estate brokerage.

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