The Batterymarch Insider
In this issue:
Branded Residences – More Sizzle than Steak
“Flying the Ritz flag is a good move by Hines, because paying oodles of money to live above a major bus/train terminal and subway station has limited appeal.”
Property Spotlight – On the Market
- 1 Dalton St., unit 5801/5802 – Fees & Taxes = $51,000/mo at the “Prince of Darkness” – Offered at $38 Million ($4,842/sf)
Well Bought/Well Sold
- Fall Market – Downtown Luxury Market Update
Branded Residences – More Sizzle than Steak
Boston’s original Four Seasons on Boylston Street made history in 1985 as the first branded residential property in North America since Manhattan’s Sherry Netherland opened its doors in 1927. Branding is all the craze these days with auto manufacturers, fashion designers, and even former presidents lending their names to real estate developments. Is this trend more sizzle than steak?
Branded residences have generally been anchored by operating luxury hotels. Typically, the hotel occupies the lower levels of the building with private condominiums on the upper portion. The model makes good sense as there are a lot of cost synergies between hospitality and full service residential condominiums. It’s been so successful that Boston recently got a second Four Seasons which joins the Ritz, the W, the Mandarin Oriental, and the soon to open Raffles.
Luxury Living Above the Bus Depot?
Last week we got news that Hines, the developer of the office/residential tower above South Station, will be marketing their 166 luxury condominium units under the Ritz-Carlton brand. The South Station development, which is set to open in 2025, joins the soon to open St. Regis in the Seaport as the second non-hotel anchored branded property in Boston.
Flying the Ritz flag is a good move by Hines because paying oodles of money to live above a major bus/train terminal and subway station has limited appeal. Between the annoying sound of diesel locomotives sitting in the station at high idle and the cast of characters that tend to loiter around these places, you need something to bait in the high rollers.
Stand Alone White Glove Service Isn’t Cheap
Operating these high amenity white glove properties isn’t cheap and often the true cost doesn’t come into focus until well after the developer has faded out of the picture. In our opinion, not having an operating hotel to leverage resources puts these non-hotel branded properties/high fee buildings at a cost disadvantage and that could negatively impact future values. Developers love branding – you get a premium when you’re selling the “St. Regis” vs “150 Seaport Boulevard.” It’s even better for the brands as they get to sit back and collect fees.
We like hotel/residential properties as they have good energy, in fact yours truly lives in one. But without the actual hotel, it’s really just an expensive marketing banner – definitely more sizzle than steak by our way of thinking. A St. Regis without the King Cole Bar? No thanks. There’s only one St. Regis.
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.
1 Dalton St., unit 5801/5802 – Fees & Taxes = $51,000/mo at the “Prince of Darkness” – Offered at $38 Million ($4,842/sf)
DOM – 4, Taxes $304,199/year, Monthly Condominium Fee – $25,712
$38 million is an awful lot of money for an apartment in the Boston market. While developers have had pretty good luck selling “trophy” units, this seller bought the unit from the developer for $31 million two years ago, the aftermarket has been a bit more fickle.
The grand penthouse at 1 Franklin Street initially sold for $35 million in 2016. That owner subsequently tried to sell the unit for $45 million ($3,394/sf) before calling it quits after a few years. According to MLS records, the top tick for a Boston condominium in the re-sale market stands at $21.5 million. That was for a penthouse at the Mandarin Oriental (original asking price was $28 million).
Unit 5801/02 is a 7,848 square foot 5 bedroom two unit combination. It comes with parking for four cars and has two small (36 square feet) balconies. It goes without saying that the views from the 58th floor are great, although probably not quite as good as the views from three floors above this one.
One of our pet peeves with combined units is that they often feel like someone just removed a wall between two units – which seems to be the case here. You end up with two kitchens, two primary bedrooms, two living rooms, etc.
Apparently the seller took two years combining the units, so presumably the redundancy was intentional. Since not everyone wants a 7,848 square foot apartment, the redundant features make it pretty easy to divide it back into two units.
By any metric, this is a very expensive property. We’d go so far to say that it’s expensive even by New York City standards where $30+ million apartments are more common. For roughly the same price, in New York there’s a larger penthouse on the market at the Ritz on Central Park South. That unit is nearly $1,000/sf cheaper. Monthly fees and taxes on that New York property will run you about $31,500, that compares with just over $51,000/month for this unit.
It’s our understanding that the seller of the unit never spent a night in it (there’s a reason we refer to 1 Dalton as the “Prince of Darkness”). Hopefully the next owner will actually live there and enjoy the views. We won’t venture to guess what the right price is, but if buying the unit is more about asset allocation, we can think of far more productive ways to put capital to work in the real estate market.
Unit 5801/5802 at 1 Dalton Street is offered by MGS Group Real Estate.
Well Bought/Well Sold
Fall Market – Downtown Luxury Market Update
While we normally highlight transactions in this space, in a sign of how slow the market is, there aren’t any meaningful transactions to comment on. Instead, we thought it would be worthwhile to provide a fall selling season luxury market update. For this exercise we’re using Back Bay condominiums over $2.0 million as our proxy for “luxury.”
The first half of the luxury fall selling season is revealing material weakness. On a year-over-year basis, the Back Bay luxury condominium market is down across all three metrics – units sold, average price per square foot, and average selling price.
We hear chatter in the realtor community that since many high-end buyers pay cash, they’re somehow immune to higher interest rates. Our analysis tells a very different story.
The average selling price fell off a cliff, down 52% YoY, and luxury inventory is starting to pile up. There are currently 68 Back Bay units offered north of $2.0 million, and nine in excess of $10 million. The average asking price of these units stands at $6.0 million or $2,159/sf. (Note, we ran the numbers without the $38 million listing at 1 Dalton – it didn’t materially move the needle.)
7% Mortgages – Hitting All Price Points
We’re the first to acknowledge that this is a relatively small sample size and, like most real estate data, it’s backward looking. That said, this snapshot accurately illustrates what’s actually going on in the market in real-time. The market is soft and seems to be getting softer – 7% mortgages are clearly having an impact across all price points.
At this point in the cycle, we continue to advise clients who are buying downtown real estate to maintain a value-centric approach. We specialize in representing buyers and are experts in downtown real estate valuation – feel free to give us a call.
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.