Are the Japanese Right About Secondhand Homes?

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In this issue:

Are the Japanese Right About Secondhand Homes?

Property Spotlight – On the Market

  • 347 Commonwealth Ave, unit B – Classic Back Bay Floor-Through, Older Renovation. Offered at $3.99 Million
  • 96 Beacon Street, unit 2 – Perfect Spot for the Wombles of Wimbledon. Offered at $5,650,000

Well Bought/Well Sold

  • 1 Dalton Street, unit 3601 – A Million Dollar Flip – Well Sold

What’s Catching Our Eye

Are the Japanese Right About Secondhand Homes?

According to the Japanese government, the “useful life” of a house is officially 22 years. This isn’t some non-cash accounting gimmick, houses (not the land) become completely worthless in Japan after 20 – 30 years. When a property changes hands, new owners demolish the existing structure and start from scratch. While this may seem odd to us, we need to recognize that in the U.S., commercial property is fully depreciated over 27.5 years.

The fact is that real estate (structures) have a useful life and they require ongoing maintenance and periodic re-investment if you’re not tearing them down every 25 years. In our core market, many buildings are 150 – 200 years old. Over the years, these properties have been used as single family homes, rooming houses, dormitories, office buildings, etc. As the properties change hands there is generally an investor involved, with a watchful eye on the project’s P&L and looking for ways to cut corners.

The quality of a condominium conversion from 1980, when interest rates were at 20% and landlords were in deep trouble, will be very different from a 2015 conversion. While the 1980 vintage condominium unit most likely has been updated, subsequent owners will still be dealing with quality issues lurking beneath the surface, or in the case of rotted pilings, well below the surface.

One of our pet peeves involves properties being advertised (and priced) as “recently renovated,” when in actuality the renovation took place more like 15 years ago. While these older renovations reveal their age through dated appearances, the real issue comes into play when you consider that the expected lives of roofs, elevators, appliances and mechanical systems are around 12-25 years. 

Buyers of aged properties can sometimes live in them and avoid updating systems, but when the time comes for them to sell, say 10 years or so down the road, they’ll be marketing a 25 year old renovation, and it will be their time to pay the piper.

We’re not advocating that we should be tearing buildings down Japan style, but buyers need to understand what they are buying and have a clear understanding of the need and cost of updating urban properties. Don’t expect to get this data from Zillow or from a listing sales agent – it’s the listing agent’s job to try to give tired old units that new car smell by staging and with a cheap paint job. We can help – give us a call. 

Property Spotlight – On the Market

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.

347 Commonwealth Ave, unit B – Classic Back Bay Floor-Through, Older Renovation. Offered at $3.99 Million

Unit B at 347 Commonwealth Avenue is a 2,200 square foot, two bedroom first floor unit on the sunny side of Commonwealth. The unit comes with one deeded parking space and access to the common roof deck. 

Pros: Ceiling hight – 14-15 foot ceilings. Living room gets good sunlight. Well proportioned rooms. High quality renovation. 

347 Commonwealth Avenue

Cons: Location – the end of the last block before Mass Ave. “Deep space” (see “Deep Space – The 27 Foot Rockefeller Rule”). Older renovation – nearly 16 years old.

After years of commercial use, this building was converted into condominiums back in 2006 by a well respected developer. This unit appears to be in very good condition and these parlor level units have great ceiling height. On the negative side, it’s not an open floor plan and the kitchen is pretty far away from a natural light source, and the living area.

The listing notes that this unit is a “one of a kind.” It seems pretty cookie cutter to us. In fact, floor-though units are pretty much a dime a dozen in the Back Bay. Some view that end of the Back Bay as less convenient, and that combined with the fact that the renovation is nearly 16 years old doesn’t seem to be factored into the asking price of $1,817/sf.

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. At the right price, we’re giving this one a thumbs up.

96 Beacon Street, unit 2 – Perfect Spot for the Wombles of Wimbledon. Offered at $5,650,000

Unit 2 at 96 Beacon Street, a 2,831 square foot 3 bedroom lower level duplex with one parking space, has been on and off the market for over a year. The unit is part of a four unit 2009 condominium conversion located on the corner of Beacon and Arlington Streets.

96 Beacon Street – unit 2

Pros: Great Beacon Hill location. Spacious first level living area. Sunlight – floor to ceiling west facing windows. Practical private outdoor space.

Cons: All three bedrooms are in the basement. Busy intersection.

The first floor of this unit is fantastic. It gets great afternoon sunlight, has floor to ceiling windows, a nice terrace, etc. But this is a “parlor and garden” (aka first floor and basement), and all three bedrooms are in the basement. Maybe it’s just us, but the idea of having metal bars on our bedroom windows just isn’t very appealing – especially at this price point.

The unit last traded in February of 2020 for $5.2 million and was re-listed for sale six months later at the current price. Maybe the owner has realized that subterranean living is best left to the Wombles of Wimbledon? We’re giving the unit a thumbs down.

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

Well Bought/Well Sold

1 Dalton Street, unit 3601 – A Million Dollar Flip? – Well Sold
1 Dalton Street

It took just five days on the market for unit 3601 at 1 Dalton to find a new owner. The unit, a 2,630 square foot 3 bedroom on the 36th floor, sold for $7.07 million ($2,630/sf). While there are plenty of closings going on at 1 Dalton, for the most part they are new units that the developer is delivering. This was a re-sale which got our attention. 

This unit has north/west views which from our stand point is one of the preferred orientations. The seller bought the unit in December of 2019 for $5.9 million and took a $4.0 million mortgage, so they’re walking away with nearly a million dollars in their pocket, and a very attractive cash on cash return.

While one transaction doesn’t make a trend, this is a good omen for the re-sale values at 1 Dalton. The Boston market hasn’t been kind to the resale values at other high rises recently – but hey, this is the Four Seasons. One word of caution though. This appears to be an international buyer and we question how much due diligence takes place in some of these long distance transactions. Hats off to the seller on this one, 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 the real estate brokerage.

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