Harlem townhouses are a very strange market right now and figuring out a proper bidding strategy can be tricky to say the least. I thought I’d step through our thinking on one place in particular where our bid was just rejected to bring out some of the issues.

The townhouse we were bidding on was 54 West 130th Street which is one of 28 townhouses known as Astor Row in Central Harlem. There’s a good Wikipedia article on Astor Row, and the New York Times did an article on it recently as well. Astor Row townhouses are definitely not typical Harlem townhouses. They are brick with wooden porches and are generally narrower than their lots so they appear to be in pairs.

We had a really hard time coming up with a bid. At first glance, and on an emotional level, the place looks like it’s worth $800-850K, but the more thought we gave it, the lower our bid went…

Let’s start with what’s right with the place…

• It has wonderful karma
• Even though there are locks on all the bedroom doors (hinting it’s been used as a rooming house at some point), it appears otherwise to be an intact single family home, which is quite rare.
• There are lots of original details and they’re in pretty good shape for a 126 year old house.
• It appears to be in great shape overall.
• It has a unique layout with three large bedrooms per floor – so you get the space of a 5 story townhouse without the extra flight of stairs.

It’s rare to see things in that condition these days. You see shells, and you see things where the details have been ripped out, but that particular combination isn’t something you see very often so it’s hard to put a price on it.

But there are problems as well. I’ll go over them one at a time to prove my point…

Problem #1 – The next door neighbor

The house next door (#56) is quite dilapidated. When the Astor Foundation was giving away new porches and free façade restorations the owner at the time apparently said “no thanks”. It’s possibly the worst house on the block. Here are a couple pics…

When you look at the front you think it’s just a run down eyesore. It’s not boarded up and we think we remember seeing someone go in the first time we were around there. But when we saw the back of the building we realized it’s essentially a shell that’s getting rain into it’s interior through all the broken windows. Given the condition that’s evident in the rear, it needs to be boarded up. Either the person in it is living in squalor or it’s being used for drug activity. In either case it would be too easy for it to catch fire and spread to the buildings next door, so living next to it is a scary prospect.

And it’s not just the next door neighbor….

• The two at the end of the block are run down and owned by a Pentecostal church which is taking their sweet time renovating them.
• In the other direction 2 doors down there’s another that’s a shell
• Further down the block there are a few others that are run down SROs and/or shells.
• Directly across the street there are a couple that are shell-like. One seems to have been gutted and then had all work stop.
• There are a couple other run down SROs on the other side of the block.
• The back yard is small (since so much room is given to the front yard) and there are rather rough rental buildings directly behind the townhouse. This is not like Hamilton Terrace where you have people on Convent Avenue looking at you. Go take a look at who’s hanging out in front of those buildings and you may not be so comfortable with them seeing everything you do in your back yard.

All in all you can’t use prime locations as comps for this townhouse. No matter who says it (including the NY Times), there are definitely more than “a couple” problem buildings on the block.

Problem #2 – Plumbing and Electrical

While pretty much everything appears to be in working order, when you look closely you see a different story and realize that it needs all of the plumbing and electrical replaced. There are maybe two outlets per room. Most rooms don’t even have light switches. And looking at the electrical panel I’d guess it has maybe 100 amps of power going into the house. I think we have 200 amps in our apartment.

As far as the plumbing – it’s not up to code – it’s been done with PVC which is illegal in NYC. Given that plumbers can probably lose their license for using PVC I doubt the a licensed plumber did the work.

Now think about what it will take to replace all the plumbing and all the electrical in a house where you want to preserve the original details. The work is best described as “surgical”. If it were a gut renovation it would be so much easier, but this has to be done by highly skilled workmen and will wind up being quite expensive.

Problem #3 – Other Major Expenses

Given that all the plumbing has to be redone and the bathrooms are out of date (at best) that means all new bathrooms. Likewise the kitchens (there are two – the main one in the basement and a kitchenette on the top floor) both need complete overhauls. So you’re looking at 3 new bathrooms and two new kitchens – none of which come cheap.

Add to that all new windows if not immediately, then pretty soon. The windows on the front can’t be done cheaply – they have to be approved by the Landmarks Commission. The one in the living room is nearly 5 feet wide and 7 feet tall – there’s no cheap way do a window like that and get it past Landmarks.

And if you’re going to spend that much on the place, then you’ll probably want to put in things like central air conditioning, etc… So the costs will keep adding up…

By the time you’ve finished work on that house you will have spent about the same as a low-end gut renovation. You’ll have a great place (except for the neighbor), but you’ve got to factor all those costs into your bid.

So how do you bid on a place like the Astor Row townhouse?

Take what I’m about to say with a grain of salt – our bid was not successful…

First, let’s look at the comps… There aren’t any perfect comps for this townhouse. There aren’t that many sales and none of what is selling is in a similar condition, in a similar location. So all you can look at is a range and then figure out where it falls in that range.

At the low end you have shells (or ones that are essentially shells). 6 West 128th Street (two blocks down) sold for $144/sq. ft. on 7/22/09 which is 25% below what it sold for 5 months earlier. Also close by is 46 East 126th Street which sold for $98/sq. ft. on May 14th, but that one is affected by the rezoning on 125th Street. There are a few other comps but the ones in the low end average around $120/sq. ft. and never really get much above $145/sq. ft.

At the high end you have renovated ones that literally need no work and are in mint condition. The best comps there are 63 West 127th Street which sold for $214/sq. ft. on August 17th, and 133 West 131st Street which sold for $284/sq. ft. on June 8th. I would say mint condition townhouses in that area average around $250/sq. ft. If after renovations you’ve spent much more than those, then you’ve over invested.

54 West 130th has 3,525 square feet (officially, not including the English basement – there is no cellar, so much of the basement is mechanical). So, if it were a shell it would sell for around $425K. If it were in mint condition it would sell for between $875K and $1M.

It’s hardly in mint condition and needs at least $350K in renovations – probably more like $400K. If you start with the high end of the mint comps and subtract the minimum you’d spend on renovations you come to $650,000. That’s actually what we bid, but it got rejected because “there was a substantially higher offer”. But looking at it that way is a recipe for overspending since renovations will probably cost more and the market might fall. But we loved the place and were willing to spend more than the comps warranted to get it. Honestly, I think the person who put in the “much higher offer” is insane. We’d never go “much higher” on that place – not with those neighbors and in that condition.

$650K is also exactly half way between $425K and $875K (the low and the high), and the house is somewhere between those two conceptually as well – definitely not a shell, and definitely not mint.

On a price per square foot basis we bid $184/sq. ft. and it needs about $100/sq. ft. in renovations. So our final investment would have been in the range of $285/sq. ft. – actually higher since $650K was just our initial offer and we were prepared to go up. There’s just not much selling around $300/sq. ft. so it would have been an iffy investment especially if real estate values continue to go down and even if they stay flat.

I think it’s instructive to look at the top end of the market, since after renovations that’s where you’d end up… Here are all of the Harlem townhouses that sold for more then $1M in the past 6 months…

• 235 W 132 – 7/8, $1.05M, $291/sq. ft, 3 family
  I don’t understand this one – too close to projects, not close enough to subways
• 310 W 133 – 7/10, $1.06M, $212/sq. ft., 4 family
  Odd little 2 story building sandwiched between two apartment buildings
• 236 W 138 – 7/20, $1.693M, $277/sq. ft., 2 family
  Striver’s Row
  [edit: On closer examination the square footage of this house seems misstated. It’s officially 6,060 sq. ft., but it’s twins on either side are in the neighborhood of 4,500 to 4,700 sq. ft. At that square footage it sold for more like $360/sq. ft. – but it’s a prime Striver’s Row townhouse with recent renovations so that actually isn’t all that surprising.]
• 48 Hamilton Terr – 7/27, $1.1M, $292/sq. ft., 2 family
  The one we know well. Needs work, but very much livable.
• 883 St. Nicholas Ave – 7/29, $1.04, $235/sq. ft., 3 family
  Recently renovated. Appears to be in great shape.

For being the high end of the market, that’s not all that impressive. Most of those are just over $1M and they averaged $261/sq. ft. Subtract $100/sq. ft. for the renovations needed to this townhouse and you have $160/sq. ft. or $564,000.

My other rule of thumb is that townhouses should be going for 40% of their 2007 comps – that’s just how much the market has come down. In 2007 a renovated Astor Row townhouse went for $1.875M and 40% of that number is $750K, but that was a renovated townhouse which only shows that one should use the lower end of the mint comps.

We put in what we thought was a very competitive offer and it was rejected. It will be interesting to see how their other offer progresses and what it eventually sells for. There is an emotional factor to buying real estate and this property definitely elicits that. I just hope the new owner doesn’t regret what they paid for it after it’s all said and done.

Postscript: As I was writing this our broker told us the selling broker told her that another offer had come in over the offer that was “much higher” than ours. So now there’s a bidding war. I just don’t get it…

UPDATE: It’s now early March and the top of the market is clearly going up. I’d now guess this place will be worth $375/sq. ft. after about a $100/sq. ft. renovation making it’s current value around $275/sq. ft. That means the value has gone up substantially – $950K is not unreasonable for this property now. You won’t be making money on it, but won’t lose your shirt either. Thing was, back when I initially wrote this the comps didn’t come close to supporting a number of $950K. After having our offer on this place rejected, we did finally buy a place and paid $122/sq. ft. for a total shell. After renovations we’ll have about $300/sq. ft. invested in our place and the current comps say it’ll be worth about $400/sq. ft. While I love the karma of the place on Astor Row, ultimately we were shopping for a deal and Astor Row wasn’t a deal… However, someone will be very happy living there and it looks like they won’t need to worry about having lost money on the deal, which means they’ll have no regrets.