“Marry the Property & Date the Rate?”

The Batterymarch Insider

Batterymarch Group LLC is a full service independent real estate brokerage firm specializing in the downtown Boston market. More about our services here. “The Batterymarch Insider” is a brief snapshot of our current market thinking. As always, our “terms of use” apply. We encourage you to subscribe.

In This Issue:

“Marry the Property & Date the Rate?”

“Realtors coached their clients to throw all caution to the wind with respect to winning bidding wars; we fail to see how this latest sales pitch is any different.”

Property Spotlight – On the Market

  • 395 Commonwealth Ave. – Tiffany House, The Art World Says No?  – Offered at $14.995 Million ($1,000/sf)

Well Bought/Well Sold

  • 1 Dalton St. unit 4105  Another Big Loss at the Prince of Darkness – Well Sold
  • 300 Boylston St., unit 905 – The Seller Got the Better End of this Deal! – Well Sold 

“Marry the Property & Date the Rate?”

Realtors will do or say just about anything to collect a commission check. It was just a few months ago that the realtor community insisted that buyers needed to throw all caution to the wind and pay ridiculous premiums to win bidding wars. “Don’t even think about a home inspection – don’t you get it? There’s a shortage of real estate!

More toxic advice?

Thanks to the Federal Reserve and sharply higher interest rates, that sales mantra has been shelved and replaced with something potentially even more toxic – “marry the property and date the rate!” The thinking behind this is that interest rates are on the verge of plummeting and home prices are set to soar again.

If you’re in the camp that thinks that real estate values can only go up, then there is some wisdom to this line of thinking. We don’t profess to know the path and timing of interest rate moves. To be sure, at some point they will be lower – but the reason and timing of interest rate declines could be problematic for this new realtor strategy.

The first issue we have with this sales pitch is timing. Dating interest rates likely won’t be a one night stand. Assuming that we don’t get more bad news on the inflation front, we’re probably getting close to the end of the current tightening cycle and are seeing some signs that inflation pressures are easing. However, the economy is still robust by most measures and we’re very far from the Fed’s inflation target of 2%. So you may be stuck dating an ugly duckling interest rate much longer than expected.

Our second concern relates to the economic conditions that would trigger a sharp reversal in Fed policy. For the Fed to start slashing interest rates, the economy would need to be in tough shape. Historically, periods of a contracting economy and high unemployment don’t lend themselves to soaring real estate values. An all out recession could be the second shoe to drop on the real estate market.

Realtors coached their clients to throw all caution to the wind with respect to winning bidding wars; we fail to see how this latest sales pitch is any different. Don’t get us wrong, we’re not advocating that buyers attempt to time the market, but we’re not mindless cheerleaders for every commission check property that comes along. Valuation matters – you only get one bite of the valuation apple.

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.

395 Commonwealth Ave. – Tiffany House, The Art World Says No?  – Offered at $14.995 Million ($1,000/sf)

DOM – 4, Taxes – TBD

395 Commonwealth Avenue

Last summer we highlighted 395 Commonwealth Ave., the “Tiffany Ayer Mansion” (see “The Real Estate “Dark Web” and Fiduciary Duty – Strange Bedfellows”). That note focused more on the pitfalls of “off-market” real estate transactions. At the time, the Tiffany Ayer Mansion was being offered off-market for $17.0 million. 

We didn’t take the property very seriously, largely because the developer, Sea-Dar Construction, pegged the cost of renovation between $10 and $20 million. That would put the finished product between $27 million and $37 million. With its Tiffany provenance, the early marketing was clearly aimed at the art collector world where Tiffany lamps can fetch millions of dollars. Apparently, the art world didn’t take the listing seriously either.

When the property first debuted, our knee jerk reaction was that if you really love Tiffany art, the better play would be to buy a nice house on Louisburg Square and pick up a few Tiffany lamps (you could even sprinkle in a few reproductions, most people would never know). We figure that you’d be ahead of the game by about $10 million. With the extra jingle you could buy a place on Nantucket and have the lamps shipped down for summer enjoyment.

Tiffany lamp

Last week, the seller knocked $2 million off the price and listed it in MLS. We’d say that $1,000/sf is market correct for properties that need extensive renovations. The problem here is the previous owner entered into a Preservation Restriction Agreement with the Massachusetts Historical Commission that governs key elements of the interior.

The preservation restrictions make it logistically difficult to divide the property into condominium units. There’s not much of a market for a $30 million+, 15,000 square foot gilded-age house in the Back Bay – particularly on the other side of Mass Ave. Plus, who wants to own a property where some bureaucrat from the state Historical Commission can stop by to make sure that you didn’t change the hallway paint color?

If the developer can get approval to divide the property into condominium units without turning half the building into common area, the current asking price isn’t completely unreasonable. Like most gilded-age properties, as a standalone it’s obsolete and highly illiquid.

395 Commonwealth Avenue is offered by LandVest, Inc.

Well Bought/Well Sold

1 Dalton St. unit 4105  Another Big Loss at the Prince of Darkness – Well Sold

“Prince of Darkness”

Unit 4105, a 2,186 square foot 2 bedroom at the new Four Seasons, aka the Prince of Darkness, has a new owner with a sale price of $6.1 million ($2,790/sf). This is a 15% discount to the seller’s original asking price of $7.2 million back in the summer of 2021.

The seller paid $6.375 million for the unit in September of 2019, so net after fees the loss is more like 9.5%. The carrying cost to these kinds of properties can be enormous. Between servicing a $5.1 million mortgage, condominium fees, and taxes it was costing just shy of $30,000 a month to lug this baby. If we add back the carrying cost to the net loss on the sale, the monthly cost jumps to $51,500 – ouch!

The takeaway is that we’re coming off of the hottest real estate market in recent memory and this is the result? With loads of these kinds of units hitting the market, how will valuations hold up in a bad market? The seller did the right thing by punting, it was – Well Sold.

300 Boylston St., unit 905 – The Seller Got the Better End of this Deal – Well Sold

300 Boylston Street

The seller of unit 905 should be a happy camper after successfully unloading the apartment after less than two years of ownership. The unit, a 1,932 square foot 2 bedroom with parking sits on the ninth floor overlooking the Boston Public Garden. It sold last week for $4.35 million ($2,252/sf), a 7.5% discount to the $4.699 million asking price.

The Heritage, a 87 unit complex built in the late 1980s, offers a good mix of old school Back Bay, with proper amenities. The location is about as good as it gets in Boston and being right on the Public Garden is a big bonus. The Heritage was the “it building” back in the day. Unfortunately, many of the units feel dated by today’s standards.

The seller bought the unit in November of 2020 for $3.9 million ($2,018/sf). Some may argue that the 2020 price reflected a Covid discount; we disagree. As we see it, the 2020 price was a premium given the dated condition of the unit. Needless to say we would have advised against paying an 11.5% premium on top of the 2020 premium.

This is an all round great property and we have no doubt that the new owner will enjoy it for many years. Net after fees the seller walked away with a 5.5% gain (11.5% before fees). It’s clear to us that the seller got the better 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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