A Broker's Search...Where to Buy (Part IV)

Today I visited 212 E 47th street and if you are looking for a primary residence and don't have a ton of money for a down payment, this might be the building for you. Here are the details:

Building Overview:
- Converted from rental
- 260 apartments; 35 floors
- Closings anticipated Nov '07 - Jan '08
- Market rate tenants are on month to month leases & have option to buy
- Only about 15 apts left on market now, more units coming available mid-July when market rate tenants decide whether to purchase

Amenities:
- 24 Hour Doorman
- Roof Deck
- Fitness Center w/ Yoga Studio
- Screening Room
- Library / Conference Room
- Laundry in Basement

Apartments:
- Three types of finishes; finish style depends on the floor you are on
- Sq footage measured to mid-point of the wall
- Approx 8'6 ceilings
- Customized closets, towel bars, toilet paper holders included (sounds silly, but some new developments have these in their model units and then you find out they aren't included in the apartments)
- Shower rod in baths (not shower doors)
- Kitchens have Jenn Air & Bosch appliances
- Some apts have windowed kitchens and/or baths
- Some apts w/ balconies

Pros: Good price per sq ft for a brand new apartment/building. For example, 25A is a 628 sq ft one bed for $680K ($1,082/sq ft). No two bedrooms currently available but 3 bed, 2 baths are $1,230/sq ft (18F is 1,160 sq ft for $1.427M. 1,160 sq ft is about the same sq footage as a lot of two bedrooms, though).

Cons: No tax abatement (you may wish to read the UrbanDigs post Noah wrote on why he dislikes the 421a tax abatement. In my case, I would find it helpful in keeping my monthlies low), no w/d in units

Assessment:
I loved 24H, a 642 sq ft one bedroom with an open kitchen and a balcony with a sliver of the river as well as Chrysler Building views for $743,000 (at the time of this post, someone else in my office has a contract out on this apt for one of his customers, so evidently I wasn't the only one that thought this was a great apartment!). Condo sublets of a similar size (also with outdoor space) are renting at the Highpoint, a condo building on 40th st with similar amenities (although it also has a pool), for $3,300. The Vanderbilt is also in this area. 800+ sq ft apts sublet for $3,600 but 650 sq ft one bedroom apartments there sublet for about $3,300. So unfortunately there are a LOT of one bedrooms in condo buildings for rent right now in this neighborhood.

With a 5/1 interest only ARM (lowest payment) and 20% down payment, my monthlies are $4,417. Yikes. After tax deductions (still undecided as to whether I will live there or sublet it out for a while, etc.), net monthlies are about $3,250. If this were definitely going to be my primary residence, I would buy this apartment because of the open kitchen, the balcony and the views. After tax deductions, it's cheaper than rent, and the price per sq ft is great for a conversion.

But I am leaning towards renting the apartment out, which means I will be losing $1,000 a month depending on how creative my accountant can get with depreciating the property. I almost crossed this off of my list of potential purchases, but then I checked the rental history for the building. Churchill (a short-term furnished rentals company) is renting out the 630 - 700 sq ft one bedrooms for $6,150 - $6,300, which would explain why some of the apartments are on a month to month lease. To get a company like Cort Furniture to furnish the apartment (renting furniture for a one bedroom is about $600/month), all I would need to make is $5,000/month to break even. Or I could furnish it myself, but I'd need to replace the furniture every few years, which could be a pain. There is more of a hassle dealing with short term rentals because you have more turn over and you have to include utilities, cable, internet, local phone charges, and sometimes weekly or bi-weekly cleaning service in the rent (this probably adds another $400/month). When I have rented short term furnished rentals to customers, there was this pesky hotel tax for anyone staying under 120 days, so I would need to look into that as well.

There is also a risk that once the condo board is formed, they might set a minimum lease period (some buildings have a 6 month minimum lease), which would kill the furnished rental idea. If I could rent the apartment to a corporation, the situation becomes more promising. Some condo boards will not allow corporate leases, but it's possible I could have a corporate lease approved before any of the "House Rules" are set. 47th and 3rd is very close to the UN and Grand Central, companies like JP Morgan at 250 Park Ave, and an easy commute for anyone on the E line (like all of those attorneys in Times Square)...

I also really like the new Phillippe Starck building, The Gramercy. Let's compare (assuming $150K down payment on each apartment and an Interest Only 5/1 ARM at 6.125%):

25A at 212 E 47th St
$680K
628 sq ft
$1,082/sq ft
CCs - $514
RETs - $762
Total monthly - $4,075
Net monthly - $3,013

8F at The Gramercy (340 E 23rd st)
$765K
638 sq ft
$1,199/sq ft
CCs - $550
RETS - $65 (10 year tax abatement)
Total monthly - $3,754
Net monthly - $2,792

One bedroom apartments at the Post Luminaria, a luxury rental building right next to the Gramercy, are renting for $3,900 a month. Stuyvesant Town's one bedrooms rent for $3,000 - $3,400 based on how close you are to 1st Avenue. Despite the great price per sq ft at 212 E 47th street, I think the Gramercy wins out for my personal investment needs. Besides Crossing 23rd, there isn't much inventory in the way of luxury condos in the area.

However, look how this plays out for a first time buyer who doesn't have that much cash to put up front, but who makes a great salary:

212 E 47th:
$680K w/ 20% down - $136K down payment
Closing costs - budget 5.5% - $37,400 (in a new development you have to pay the sponsor's transfer taxes. Sometimes you can negotiate these but it depends on how quickly the units are selling)
Total cash up front = $173,400

The Gramercy:
$765K w/ 20% down - $153,000
Closing costs - $42,075
Total cash up front = $195,075

That's $20K extra cash up front for the same apartment. So you have to also look at a. whether you have the extra $20K and b. the opportunity cost of that $20K. Some buyers in this price point may need the extra tax deduction that 212 E 47th street provides because of the higher real estate taxes. The Alternative Minimum Tax (AMT) is killing some young traders and iBankers, so it's possible that they would actually NEED these extra taxes as another write-off. DISCLAIMER: I'm not an accountant. You should always consult your accountant (and don't forget your attorney and mortgage broker!) before making any real estate purchase.

I look forward to reading your comments!

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