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:

Myth Debunked – The Value of Real Estate Always Goes Up – Big Beacon Hill Loss

Property Spotlight – On the Market

  • 63 Mount Vernon Street, unit PH – Gulp, They Want How Much? – Offered at $16.99 Million

Well Bought/Well Sold

  • Mandarin Oriental, PH 2A/1E – $27.5 Million Off Market Blockbuster Deal – Well Sold
  • 257 Commonwealth Ave, unit 5  – A Win-Win On Commonwealth Avenue – Well Bought

What’s Catching Our Eye

Myth Debunked – The Value of Real Estate Always Goes Up – Big Beacon Hill Loss

A common refrain we hear over and over from the realtor community is that the value of real estate always goes up. While it’s true that the value of most assets increases over longer time periods, it’s not an iron clad rule when it comes to real estate. Just ask the seller at 73 Mount Vernon Street, unit 1.

73 Mount Vernon Street

The unit, a 3,082 square foot 3 bedroom parlor and basement that was fully renovated in 2017, traded last week for $3.25 million, about a million dollars, or 25% below the original asking price. After stripping out the standard fees and taxes, the net proceeds are about $3.072 million. The sellers paid $3.45 million for the unit in June of 2019, so they booked a loss of  $378,000 or roughly 11%.

Actually, the pain doesn’t end there. According to the MLS listing, there were “$500K in additional upgrades” that include extensive cabinetry, home automation, and a custom study. Assuming that the sellers made the improvements, after adjusting their cost basis the loss expands to $878,000, or 25%.

Taking things a step further, the sellers took a $2,587,500 mortgage when they acquired the property, giving them roughly $862,500 in equity. Not only did the equity get completely wiped out, but $15,500 was owed at the closing table. But wait, the deal included a year of pre-paid parking under the Boston Common which brings the loss to $20,300. Since the case is being made that real estate is a good and safe investment, we should point out that had the $862,500 been invested in an S&P index fund, the value would have increased to $1,480,353.

There was a corporate relocation company involved so it’s anyone’s guess how the loss was allocated, but that doesn’t change the underlying economics. Some may argue that the relocation firm was probably aggressive with the price, but we don’t buy that line of thinking. The unit was on the market for a total of 414 days with two different brokers. Our sense is that absent a relocation firm, the end result would have been the same but the seller probably would have held out longer, prolonging the agony.

We’d say the sale price of $1,055/sf is market correct; our issue relates to liquidity. The unit sat on the market for over two years before these sellers bought it.  We don’t hide the fact that we’re not fans of basement living, and paying $3.25 million to sleep in the basement doesn’t feel right to us. 

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.

63 Mount Vernon Street, unit PH – Gulp, They Want How Much? – Offered at $16.99 Million

The penthouse at 63 Mount Vernon Street, a 4,745 square foot 3 bedroom duplex with 2 onsite garage parking spaces hit the market this week for an eye opening $16.99 million. Located at the top of Beacon Hill, 63 Mount Vernon is in the process of being converted from an apartment house into 7 condominium units.

63 Mount Vernon Street

Pros: Location. On-site garage parking. Roof deck.

Cons: Valuation. Finishes. HVAC. Lack of third bathroom.

Years ago, a Merrill Lynch colleague of mine looked at waterfront homes in Chatham. I vividly remember when he came in on a Monday morning and said, “I don’t mind looking at a $3.0 million beach house, but don’t show me some dump and tell me that it’s $3.0 million.” 63 Mount Vernon isn’t a dump, but if you’re going to ask a record shattering $3,581/sf for a Beacon Hill condominium, it had better be flawless. In our opinion, this unit falls well short of flawless; we’ve been in nicer rental units.

As example, in a comprehensive renovation, a new HVAC system is generally the starting point – it’s an integral part of the building plan. The developer here, who apparently used an in-house construction team, opted to go with a “high velocity” HVAC system. These systems, with their omnipresent five inch round outlets, are generally used as a cost effective solution in retrofit situations where you aren’t gutting the space and installing new duct work.

The unit, which has three bedrooms, only has two full bathrooms. At this price point, we would expect that every bedroom would have an en-suite private bathroom. We couldn’t imagine plunking down nearly $17.0 million and listening to kids arguing over the bathroom. 

While things like the lack of a third bathroom are pretty obvious to buyers, educating our clients about finishes and mechanical systems is one of the most important things we do. The last thing you want to do is pay top dollar for mediocre finishes and substandard systems.

This is a premium location, the unit has a great roof deck and has a good parking situation, but we can’t take the asking price seriously and are giving it a thumbs down.

The property is listed with Douglas Elliman, and, as usual, we’d be happy to set up a showing and walk you through our valuation analysis.

Well Bought/Well Sold

Mandarin Oriental, PH 2A/1E – $27.5 Million Off Market Blockbuster Deal – Well Sold
Mandarin Oriental – Boston

Combined units Penthouse 2A and 1E and 776 Boylston Street (the Mandarin Oriental), with 6,677 square feet and 5 bedrooms changed hands for $27.5 million ($4,081/sf) in a blockbuster off market deal. The seller, a prominent real estate contractor, bought the units back in 2008 for $9.76 million as shells.

We’ve described the recent activity at the Mandarin as a game of luxury real estate “whack-a-mole.” The liquidity gods have been generous to these sellers. Year to date, there have been four sales totaling over $72.0 million in aggregate. Don’t fret if you think you’ve missed out, there are still four units currently offered at the Mandarin.

We don’t get too deep into the valuation analysis on true trophy properties, particularly in off market deals. But, we will highlight that penthouse 2E at the Mandarin traded a few weeks ago for $21.5 million ($3,148/sf). On a price per square foot basis, this is about a 30% premium. As a rule of thumb, in an off market deal the seller always has the upper hand, we’re calling this one – Well Sold.

257 Commonwealth Ave, unit 5  – A Win-Win On Commonwealth Avenue – Well Bought

It took just six days for unit 5 at 257 Commonwealth Ave. to get a full price deal done at $5.65 million ($1,802/sf). The unit, a 3,136 square foot 3 bedroom penthouse duplex, has two walk out private terraces and parking for two cars (one garage space, and one outdoor).

257 Commonwealth Avenue

This 50 foot wide building is one of only seven existing Back Bay homes designed by famed New York architectural firm McKim, Mead, and White. Other examples of their work in the Boston area include the Boston Public Library, Symphony Hall and Harvard Stadium. The building was converted into six condominium units in 1985.

The unit was recently renovated with solid finishes and has a contemporary feel. The oversized skylights and open stairwell bring a lot of natural light into what would otherwise be dark space. Our only gripe about this one is that the lower level front facing windows of the duplex are relatively small. Back in the day, what we now call penthouses were often living quarters for the domestic help, and they didn’t complain about the undersized windows.

Every once in a while a unit is properly priced and that’s clearly the case with this one. If you back out the value of the parking spaces, you’re looking at something in the neighborhood of $1,650/sf, which is attractive for this caliber unit. We don’t think the seller left anything on the table and the buyer got a great unit at a market correct price, it was solidly – Well Bought

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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 the real estate brokerage.

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