Inspired by three things, the "china bubble thread," the "luxury scraper thread" and a job I applied for (working for Bernard Tschumi)...
I wanted to know some feedback from anyone on Archinect more knowledgeable (hello, design-build and developers!) in the arena.
For the specific example, I am going to 'pick on' Tschumi's Blue condo tower in Manhattan's Lower East Side.
Given what I know about the site, the site was previously a single lot (no excessively site assemblage processes). And the final cost of construction was $17,000,000. I do not know if the $17 mil figure includes lot costs, construction fees, architectural fees et cetera.
I'm going to assume so.
There's currently 3 available units left in the building (which seems to be managed by Corcoran.)
The total construction size appears to be 44,000 feet (this building has a surprising significant amount of common space-- elevators practically go straight into your apartment.)
The cost of construction seems to be about $387a square foot (pretty reasonable for New York City). If we assume 18% of the cost was contractor and architectural fees and another 5% was planning and permitting fees, this bumps down the construction costs to $297 dollars a square foot (totally reasonable for New York Residential).
So, we know that.
This is where my question is...
Judging by the figures, the building charges per square foot in common charges-- about a $1.18 per square foot of apartment a month (roughly $1000 for 1 bedroom to $2000 for 2 bed room). Absurd!
As for the sale prices, a 972 square foot apartment on the second floor is selling for $999,999. A 957 square foot apartment on the sixth floor is selling for $1,225,000. A 2,004 square foot apartment is selling for $2,150,000.
That's $1028.80, $1280.04 and $1072.85 a square foot respectively.
What this says to me is that architecture, contracting and permitting aren't really the expensive thing here. At the $1280.04 per square foot price, that's a markup of 330%.
So the question is--
Who is getting this 330% markup? I'm well aware that money, capitalism... blah blah blah. But even in New York, there are few people who can afford $5000 a month plus $2000 a month in fees to live in a blue glass phallic box. At $7,000 a month, I'm sure there's much nicer places to be had (Sorry, Bernard!).
I think this reflects badly on the architect when obviously the intermediary is charging such an exhorbatant amount.
Next Question--
How many housing shortages would be solved if these units were sold as minimally functional unfinished concrete boxes? How much would the price plummit?
Next Question--
How much cheaper would these units be if they were sold direct from builder/architect as unfinished concrete boxes?
Obviously, supply/demand rules here. Manipulate the costs and supplies and you increase demand thereby making the same amount of money selling three cheap units as one expensive unit. Blah blah blah.
I don't have time to fully answer yet..but have a few comments to get things going here..
No..I doubt that the soft costs are included in the 17 million.
So...
1. Land is the largest of those numbers. What did the land acquisition cost. That needs to be factored in, of course.
2. Cost of the construction loan for the duration of construction. Typically it is interest only until the C of O, which would be costing someone 850K per year at 5% (just an example, typically construction loans are higher %, but you only pay interest as the requisitions are approved..etc) But..if this project took 2 years to build, then add an additional 1.5 million ..say.
3. Marketing / Realtor costs are typically 3%? Someone else may be able to help out here..but it cost something.
4. Architectural / Engineering / Permitting / Expediting Etc. may be included, but not typically when people talk about the "Construction Cost".
Just a few things..not that it totally justifies 330%..
I know people work to make money. But If one could get the construction costs down to $175 dollars a square foot and sell it unfinished for $280 dollars a square foot, that's a significant amount of profit with a general overall lower risk.
That 972 foot apartment puts the developer out $170,100, would sell for $272,160 (fair credit rating, $16,000 lender fees, $27,000 down would be $1,300 a month plus the commons fee).
That's a profit of $102,000 (sans 10% for in house sales teams), or a profit potential of $3.2 million. I mean you've already paid yourself for building it... so this would be a nice bonus plus the residual fees from maintenance.
But current configuration puts the estimate profit potential at $47,205,400. I think that's a bit unrealistic of a profit expectation. That's a lot of money to try to milk out of a single building of 32 units (many of which have been joined together).
But here's the MAGIC:
For the 972 square foot apartment on the second floor is selling for $999,999, the City of New York only values the unit at $220,000.
I'm familiar with the whole concept from a textbook point of view. But no one follows the textbooks anyways!
And every time I have tried to pry this information from someone working behind the scenes, I'm pretty much met with "that's not how it works" or "that's confidential."
Remember that for the developer to stay in business the successful projects have to cover the cost of the ones that fail to get financing/entitlements or what have you. If people are willing to pay 1000/sf for the space it's pretty hard to argue.
On the other hand the developer (and the design team) have to be careful - a price like that raises some pretty high quality expectations and if the market goes south, those buyers might start to find defects ... so add the cost of a "wrap up" liability policy into the cost side of your pro-forma.
This is about risk and reward, and in this market, about the credit and strength of the guarantor. I can't tell you how many of my developer clients have lost millions in months, many gone completely.
No reason an architect can't be a developer, that's a business decision.
So, given the risk someone has to take to acquire the loan, the assets they have to have to secure a construction loan, more power to them to get the deal done and make as much money as the market allows.
That's business.
As for a shell. Nope. Buyers want choices but they want convenience. When you buy high end, you want quality choices that are well thought out. Most won't have the time or inclination to go find an interior designer, then go through the process (some will, but most won't, and those that do won't have a problem just ripping out what's already there).
This is about location, location, location, design and marketing. Time is money, selling empty boxes would take tooooons of time, if anyone would even consider that (can you imagine a walk through with a realtor saying "and just squint your eyes a little and imagine exotic wood floors, viking appliances....", good luck!)
I understand that... but my point is more or less this.
Say, the total cost (including some of the soft costs) was $17 million dollars. The kind of collateral to put up for that would be $1.7 million at a minimum... and you have people shelling out $1-3 million for units in this building.
If I read City of New York's rent/income data, the average person who would live in one of these specific units makes more than $800,000 a year. Someone who feasibly has enough cash on hand to build one of these buildings themselves-- they can then rent it out, sell off units, collect commons fees and probably come out with free rent plus a few thousand a month with "spending money."
If we are going to take that into consideration, there are plenty of apartment buildings in the area one could buy. They are also a fraction of the costs and have similar guarantees about coming out in the black.
I'd imagine the greater goal of architecture is to produce architecture. Even more so regardless of price, bottom line or demographic. And my point was that even high-end "exterior" architecture can be easily had by the majority of the people given a different pricing structure and motivation.
This seems like "architecture" as a marketing device. A flimsy device at that. And anyone who can pull in a 7-figure salary should have that figured out. Perhaps that is why people still get in fights over pre-WWII elevator buildings?
Especially even more rotten that the City's estimation is quite low. And FYI, despite having a truly unique heritage and a long history... the Lower East Side is a really shitty location.
My idea for selling the empty boxes is that you work for a means to an end. While I think a pre-design, pre-furnished condo would be nice, I'd like to work to complete ''my home." What's the point of buying someone else's fantasy? I can see why someone who realizes they aren't skilled or creative might buy a fully finished unit. But if someone offered my an empty box with two working sinks, a working toilet and a working shower for a fraction of the price... I'd gladly sign my life away.
This whole thing just stinks of unsustainable (economically) practices. And not just Bernard Tschumi's building... but a majority of condo projects I have seen.
The land is ungodly exspensive in nyc so I could easily see over 5milllion for the site. Financing at comercial rates in excess of 10% and union labor in nyc would certainly push the cost over $200/ sf for even a standard midrise much less a starchitecture building. Then there's the underground work, easily 1/4 of the cost. $1000/sf is actualy a decent price for manhatten high end. Who makes that much? I don't know. If anything is going to give in this equation it will be the land prices going forward.
Unicorn, you are thinking like an architect - the people buying those things don't see them as someone else's fantasy, they see them the same way they see a piece of jewelry or the latest designer frock - it is all part of constructing an image: "I wear Donna Karan, I live in a Herzog and De Meuron and i drive an Aston Martin." The spending of insane amounts of money is rationalized as "curating."
What's kind of sad is that the architects do bring quite a lot of value to that equation, but we don't often see the financial reward when it pays off.
Yes my first thought too was "that doesn't include land costs or air rights costs, legal fees, arch fees, real estate fees, etc." ... doesn't mean there isn't still a giant cushion, but you should factor those items in too.
If you made a raw product, what would you want/need the mark-up to be in order to stay in business? I make and sell things on a small scale. If my mark-up was 330% I'd merely break even. Retailers who don't even add value to goods charge 2-3 times wholesale, except maybe grocery stores.
Apr 16, 10 8:59 am ·
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Condo pricing vs. reality vs. actuality
Inspired by three things, the "china bubble thread," the "luxury scraper thread" and a job I applied for (working for Bernard Tschumi)...
I wanted to know some feedback from anyone on Archinect more knowledgeable (hello, design-build and developers!) in the arena.
For the specific example, I am going to 'pick on' Tschumi's Blue condo tower in Manhattan's Lower East Side.
Given what I know about the site, the site was previously a single lot (no excessively site assemblage processes). And the final cost of construction was $17,000,000. I do not know if the $17 mil figure includes lot costs, construction fees, architectural fees et cetera.
I'm going to assume so.
There's currently 3 available units left in the building (which seems to be managed by Corcoran.)
The total construction size appears to be 44,000 feet (this building has a surprising significant amount of common space-- elevators practically go straight into your apartment.)
The cost of construction seems to be about $387a square foot (pretty reasonable for New York City). If we assume 18% of the cost was contractor and architectural fees and another 5% was planning and permitting fees, this bumps down the construction costs to $297 dollars a square foot (totally reasonable for New York Residential).
So, we know that.
This is where my question is...
Judging by the figures, the building charges per square foot in common charges-- about a $1.18 per square foot of apartment a month (roughly $1000 for 1 bedroom to $2000 for 2 bed room). Absurd!
As for the sale prices, a 972 square foot apartment on the second floor is selling for $999,999. A 957 square foot apartment on the sixth floor is selling for $1,225,000. A 2,004 square foot apartment is selling for $2,150,000.
That's $1028.80, $1280.04 and $1072.85 a square foot respectively.
What this says to me is that architecture, contracting and permitting aren't really the expensive thing here. At the $1280.04 per square foot price, that's a markup of 330%.
So the question is--
Who is getting this 330% markup? I'm well aware that money, capitalism... blah blah blah. But even in New York, there are few people who can afford $5000 a month plus $2000 a month in fees to live in a blue glass phallic box. At $7,000 a month, I'm sure there's much nicer places to be had (Sorry, Bernard!).
I think this reflects badly on the architect when obviously the intermediary is charging such an exhorbatant amount.
Next Question--
How many housing shortages would be solved if these units were sold as minimally functional unfinished concrete boxes? How much would the price plummit?
Next Question--
How much cheaper would these units be if they were sold direct from builder/architect as unfinished concrete boxes?
Obviously, supply/demand rules here. Manipulate the costs and supplies and you increase demand thereby making the same amount of money selling three cheap units as one expensive unit. Blah blah blah.
I don't have time to fully answer yet..but have a few comments to get things going here..
No..I doubt that the soft costs are included in the 17 million.
So...
1. Land is the largest of those numbers. What did the land acquisition cost. That needs to be factored in, of course.
2. Cost of the construction loan for the duration of construction. Typically it is interest only until the C of O, which would be costing someone 850K per year at 5% (just an example, typically construction loans are higher %, but you only pay interest as the requisitions are approved..etc) But..if this project took 2 years to build, then add an additional 1.5 million ..say.
3. Marketing / Realtor costs are typically 3%? Someone else may be able to help out here..but it cost something.
4. Architectural / Engineering / Permitting / Expediting Etc. may be included, but not typically when people talk about the "Construction Cost".
Just a few things..not that it totally justifies 330%..
I know people work to make money. But If one could get the construction costs down to $175 dollars a square foot and sell it unfinished for $280 dollars a square foot, that's a significant amount of profit with a general overall lower risk.
That 972 foot apartment puts the developer out $170,100, would sell for $272,160 (fair credit rating, $16,000 lender fees, $27,000 down would be $1,300 a month plus the commons fee).
That's a profit of $102,000 (sans 10% for in house sales teams), or a profit potential of $3.2 million. I mean you've already paid yourself for building it... so this would be a nice bonus plus the residual fees from maintenance.
But current configuration puts the estimate profit potential at $47,205,400. I think that's a bit unrealistic of a profit expectation. That's a lot of money to try to milk out of a single building of 32 units (many of which have been joined together).
But here's the MAGIC:
For the 972 square foot apartment on the second floor is selling for $999,999, the City of New York only values the unit at $220,000.
Hmm, thanks for far!
I'm familiar with the whole concept from a textbook point of view. But no one follows the textbooks anyways!
And every time I have tried to pry this information from someone working behind the scenes, I'm pretty much met with "that's not how it works" or "that's confidential."
Remember that for the developer to stay in business the successful projects have to cover the cost of the ones that fail to get financing/entitlements or what have you. If people are willing to pay 1000/sf for the space it's pretty hard to argue.
On the other hand the developer (and the design team) have to be careful - a price like that raises some pretty high quality expectations and if the market goes south, those buyers might start to find defects ... so add the cost of a "wrap up" liability policy into the cost side of your pro-forma.
This is about risk and reward, and in this market, about the credit and strength of the guarantor. I can't tell you how many of my developer clients have lost millions in months, many gone completely.
No reason an architect can't be a developer, that's a business decision.
So, given the risk someone has to take to acquire the loan, the assets they have to have to secure a construction loan, more power to them to get the deal done and make as much money as the market allows.
That's business.
As for a shell. Nope. Buyers want choices but they want convenience. When you buy high end, you want quality choices that are well thought out. Most won't have the time or inclination to go find an interior designer, then go through the process (some will, but most won't, and those that do won't have a problem just ripping out what's already there).
This is about location, location, location, design and marketing. Time is money, selling empty boxes would take tooooons of time, if anyone would even consider that (can you imagine a walk through with a realtor saying "and just squint your eyes a little and imagine exotic wood floors, viking appliances....", good luck!)
I understand that... but my point is more or less this.
Say, the total cost (including some of the soft costs) was $17 million dollars. The kind of collateral to put up for that would be $1.7 million at a minimum... and you have people shelling out $1-3 million for units in this building.
If I read City of New York's rent/income data, the average person who would live in one of these specific units makes more than $800,000 a year. Someone who feasibly has enough cash on hand to build one of these buildings themselves-- they can then rent it out, sell off units, collect commons fees and probably come out with free rent plus a few thousand a month with "spending money."
If we are going to take that into consideration, there are plenty of apartment buildings in the area one could buy. They are also a fraction of the costs and have similar guarantees about coming out in the black.
I'd imagine the greater goal of architecture is to produce architecture. Even more so regardless of price, bottom line or demographic. And my point was that even high-end "exterior" architecture can be easily had by the majority of the people given a different pricing structure and motivation.
This seems like "architecture" as a marketing device. A flimsy device at that. And anyone who can pull in a 7-figure salary should have that figured out. Perhaps that is why people still get in fights over pre-WWII elevator buildings?
Especially even more rotten that the City's estimation is quite low. And FYI, despite having a truly unique heritage and a long history... the Lower East Side is a really shitty location.
My idea for selling the empty boxes is that you work for a means to an end. While I think a pre-design, pre-furnished condo would be nice, I'd like to work to complete ''my home." What's the point of buying someone else's fantasy? I can see why someone who realizes they aren't skilled or creative might buy a fully finished unit. But if someone offered my an empty box with two working sinks, a working toilet and a working shower for a fraction of the price... I'd gladly sign my life away.
This whole thing just stinks of unsustainable (economically) practices. And not just Bernard Tschumi's building... but a majority of condo projects I have seen.
The land is ungodly exspensive in nyc so I could easily see over 5milllion for the site. Financing at comercial rates in excess of 10% and union labor in nyc would certainly push the cost over $200/ sf for even a standard midrise much less a starchitecture building. Then there's the underground work, easily 1/4 of the cost. $1000/sf is actualy a decent price for manhatten high end. Who makes that much? I don't know. If anything is going to give in this equation it will be the land prices going forward.
surprised (or not) no one has pointed out the cost of financing...
Unicorn, you are thinking like an architect - the people buying those things don't see them as someone else's fantasy, they see them the same way they see a piece of jewelry or the latest designer frock - it is all part of constructing an image: "I wear Donna Karan, I live in a Herzog and De Meuron and i drive an Aston Martin." The spending of insane amounts of money is rationalized as "curating."
What's kind of sad is that the architects do bring quite a lot of value to that equation, but we don't often see the financial reward when it pays off.
Yes my first thought too was "that doesn't include land costs or air rights costs, legal fees, arch fees, real estate fees, etc." ... doesn't mean there isn't still a giant cushion, but you should factor those items in too.
If you made a raw product, what would you want/need the mark-up to be in order to stay in business? I make and sell things on a small scale. If my mark-up was 330% I'd merely break even. Retailers who don't even add value to goods charge 2-3 times wholesale, except maybe grocery stores.
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