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Turbocharged Marketing To The Lowest Common Denominator

April 5, 2006 | 12:01 am |

Buy a house and get a free Ferrari. Its a compelling presentation and I don’t have enough time to dig further but it gives me the creeps. They list offering prices by the developer (I assume) but show no closing prices.

You know the old saying, if its too good to be true, then it usually is…

Next property to move:

Swampland in Florida that comes with a free RV.

thanks LS!

Manhattan Penthouse Co-op Sold For 2nd Highest PPSF in History

June 9, 2014 | 2:57 pm | Milestones |


Real estate reporter Katherine Clark at the New York Daily News got the scoop on the $70,000,000 penthouse sale at 960 Fifth Avenue, the highest price ever paid for a Manhattan co-op apartment. Curbed New York lays out all the (pretty?) pictures.

The previous record was held by David Geffen, who paid $54,000,000 in 2012 for the Penthouse at 785 Fifth Avenue. Although the Geffen penthouse was renovated, it was 12,000 square feet, more than twice as large as the 5,500 square feet within the penthouse at 960 Fifth Avenue – that just sold for a record price of $70M.

To further illustrate how much more expensive this new record price actually is, take a look at the two highest Manhattan co-op sales prices achieved, but on a price per square foot basis:

David Geffen paid $4,500 psf for the penthouse at 785 Fifth Avenue for the then record price of $54,000,000.

Nassef Sawiris paid $12,727 psf for the penthouse at 960 Fifth Avenue for the new record price of $70,000,000. On a sales price basis, the new record is 29.6% higher than the old record of 2 years ago.

On a price per square foot basis, the record sale was 182.8% above the previous record sale price set two years ago.

With all the attention focused on the newish or new development residential condo market, the all-time price per square foot apartment record was set 2 years ago, around the time of the Geffen purchase.  A Russian oligarch paid $88,000,000 for Sandy Weill’s penthouse condo that works out to $13,049 per square foot. That record breaking sale was largely viewed as a market outlier, that the buyer overpaid as part of a larger divorce strategy – since it was 31% higher than the previous record in the year prior within the same building.

Some other oddities about this new record co-op sale at 960 Fifth Avenue:

  • The 960 Fifth Avenue co-op board is old world and I’ve heard it is fairly tough. As a general statement, it is not that common to see a foreign buyer at the high end of the market approved by a co-op board.
  • The news coverage suggested the buyer was slow to pay his taxes and negotiated a reduced amount with the government. This would be a concern for most co-op boards in terms of collecting maintenance charges in arrears from a foreign national if they stopped paying.

Since these conditions would probably make any high end co-op board nervous, perhaps this is a sign that shareholders (board members are also shareholders) are concerned about damaging potential property values by limiting the universe of people that would be able to afford these types of prices in this new market condition.

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Combinations: Creating a Larger Manhattan Co-op or Condo

April 20, 2014 | 5:58 pm |


[click to expand]

Over my career, I’ve have observed a higher frequency of combination apartments (ie co-ops or condos) when inventory is tight.  A combination apartment is simply the connecting of 2 or more adjacent apartments (to either side, above or below).  It may be easier and/or less expensive to buy the apartment next door to create a larger space (even if you have to overpay for it) than to brave the tough market searching for a larger place to live.

A few years ago I started to track this during the preparation of the Elliman Report: Manhattan Sales. I looked at the actual apartment numbers and counted those that suggested they were combined. I am clearly omitting apartment nomenclature that is not so clear ie 7AB is renamed 7A, so my results are conservative.  The above chart reflects the recent trend of more combinations being sold but doesn’t necessarily equate to more being created, so new combinations would only be considered a subset of this data.

I’ve dubbed the phenomenon “1 + 1 = 2.5” because there is a premium for larger contiguous space.

I’ve always thought co-op or condo building that allow combinations (nearly all do) as providing a potential way for shareholders to realize value upside, thereby enhancing the price structure of a building ie higher values rub off on other apartments in the same building.

Some top line ideas about combinations

  • No shares are lost and in fact, many combinations  result in the acquisition of dormant common hallway space providing additional revenue in perpetuity to the corporation and a cash infusion from the purchase price.
  • Larger units sell for more on a ppsf basis (ie my formula above) potentially influencing higher values for other units.
  • A few less apartments in the mix is a non-issue (ie risk) in a building this size, unlike, say a 4 unit brownstone.
  • I’ve always thought it wise to keep the stock certificates separate to give the buyers and co-op more flexibility, but I see this done both ways (and admittedly don’t understand any legal nuances on this point.)

Some other more granular thoughts

Some layouts don’t work
- Not all combo layouts make sense or provide value upside.
- Layouts tend to work better in pre-war and new developments than post-wars.
- 1980s condos often often the least combinable layouts – ie a side by side 1 bedrooms.
- Over the last decade, developers have kept this in mind during construction to give them more flexibility during the sales process.

Higher value per square foot
- Creating larger apartments creates value upside to existing space ie “1+1=2.5″
- Sometimes large combos can be oversized for the building and there is no ppsf premium for the larger space.
- When a an owner of a large unit buyers the adjacent unit, the mere fact that the same unit owner owns both usually results in a ppsf premium before renovations are made to connect.
- The upside in value for a smaller apartment, means that a buyer can overpay for the unit as an individual sale but the addition of the smaller unit to the large unit adds value to both units on a ppsf.
- The highest value is realized when the buyer can’t tell the layout was comprised of two different units.  Simply creating a door between two apartments would realize the least upside.

That second kitchen
- The biggest “tell” on a combo is the existence of a second kitchen.
- They are often converted to a laundry room or bathroom, taking advantage of the utility connections.
- Buildings might object to the removal of the second kitchen because it may impact the building Certificate of Occupancy – I defer to lawyers on this point.

What do lenders think?
- Some banks are scared of combinations and others are not.
- In my experience banks require financing on the whole apartment – if they have a loan using collateral of one of the apartments, they will require that it be replaced with a new mortgage to cover both apartments.
- Banks often get confused on the value of a combo asking the appraiser to provide a value for each of the separate apartments before they are combined. The problem with that position is that the combination is usually worth more as one apartment (even before considering improvements) – in other words, the sum of the parts is less than the whole and the bank will incorrectly assume the collateral is inadequate.

Maintenance fees
- Many agents tell me it is assumed that maintenance charges are skewed higher for combos. I can’t prove this, all other things being equal.  When it occurs, it’s probably for reasons other than simply combining the units.
- A combo in a small building, ie a 4-unit brownstone co-op, raises the risk to the remaining shareholders if the combo shareholder stops paying their maintenance charges. Risk exposure to a mid to large sized building should be nominal.

Common Area
- Quite often hallways are purchased and incorporated into a combo layout for a better result.
- The co-op wins by getting a cash infusion for the purchase and income in perpetuity for the additional share allocation from the common area purchase.

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Change is Constant: 100 Years of New York Real Estate

February 7, 2012 | 11:28 am | delogo | Articles |

[click to expand]

Last fall Prudential Douglas Elliman turned 100 years old and they asked me to write an article for their Elliman magazine. If you’ve been living in a cave, I’ve been writing their housing market report series since 1994.

What started as a simple project morphed into a fun, albeit gigantic, research project. I learned a lot about the evolution of the Manhattan housing market, largely through the amazing incredible New York Times archives. This was right about the time of my web site revision and semi-necessary hiatus so I am cleaning out my desk of posts I have been itching to write so please indulge me.

The article I wrote for Douglas Elliman was beautifully presented by their marketing department and prominently inserted in their Elliman magazine (and iPad app!).

Diane Cardwell of the New York Times in her “The Appraisal” (an incredible column name BTW) penned a great piece: In an Earlier Time of Boom and Bust, Rentals Also Gained Favor that originated from my article and zeroed in on the 1920s and 1930s to draw a comparison to the current market.

I have the feeling my project is going to morph into something bigger – it’s just too interesting (to me). A few things I learned about the Manhattan market over this period:

  • Douglas Elliman published the first market study in 1927 [heh, heh] not counting other marketing materials written before WWI)
  • Real estate media coverage in the first half of the century was social scene fodder (same as today) but with extensive and excessive personal details presented on tenants, buyers and sellers yet housing prices and rents were rarely presented in public.
  • Manhattan made a rapid transition from single family to luxury apartment rentals and eventually co-ops.
  • Housing prices and rents by mid century weren’t that much different than the beginning of the century.
  • Manhattan’s population peaked at 2.3M around WWI.
  • Wall Street in the 1920′s was seen as the driver of the real estate market.
  • Federal and state credit fixes in the late 1930′s help bail out the housing market.

• Change Is The Constant In A Century of New York City Real Estate – pdf [Miller Samuel]
• My Theory of Negative Milestones [Matrix]

Read More

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Credit Rating Agencies Finally Get Rated

April 26, 2010 | 12:01 am | bloomberg_news_logo |

What’s cooler than watching TV on Friday night? Watching C-Span on Friday night, of course.

Whats been very surprising to me after the unfolding of the financial crisis in 2008, has been how little attention the rating agencies have attracted for their role in the systemic breakdown of the mortgage process.

There was no separation between (church) sales and (state) underwriting. Nothing has changed. Same goes for appraisers and the pressure still being applied by financial institutions.

Its actually a scary since it’s not clear how we get investors back into the secondary mortgage market if they don’t trust the ratings that are issued. That would be an important step in helping ease investor concerns. Again same goes for appraisers operating in a neutral environment.

How can someone with their hand in the cookie jar be trusted with an independent rating system?


On Friday night I watched the following panel discussions of former, disaffected employees arguably thrown softballs by the panel. I found it to be riveting because the the agencies were primarily concerned about their market share, not the quality of their ratings and the dollars and ramification were massive. The rating agencies were “enablers” by rating everything “AAA” so countries like Iceland could go bankrupt. Just like appraisers were the “enablers” of mortgage fraud by mortgage brokers.

I remember having lunch with several guys at an investment bank back around ’06-’07 who spoke with disdain, if not venom, at how the rating agencies didn’t understand the products they were rating. More as a respect issue, not for concern of the wrong rating.

Panel 1

There are two other panels for this hearing also worth listening too [Panel 2] [Panel 3]

How can anyone charged with neutral assessment of the value of an asset who is fearful of their ending their career or losing their job, do a proper assessment if they are too “low”? Or someone who can be “morally flexible” and therefore make millions personally.

Human nature.

Good grief.

Here’s a must-read article relating to trust and self-dealing by Michael Lewis:

Bond Market Will Never Be the Same After Goldman

And the closing quote:

Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done.

Yikes. Maybe there is hope for change after all.

[Appraisal Contemplations] Change Made Easier By Crisis

January 14, 2009 | 12:39 am |

Appraisal Contemplations is a column written by native Californian and a certified real estate appraiser, Aaron O. Thomas. He began appraising in Arizona and eventually ended up in San Diego where he owns and runs San Diego Appraisers. His firm specializes in greater San Diego County area residential properties and his clients include mortgage brokers, CPAs, lawyers, businesses and homeowners. Aaron is very outspoken and passionate about real estate appraising. Colleagues on Appraisers Forum have long known him as “Tucson Appraisals.” Good thing it’s too warm in San Diego to have the wool pulled over his eyes to the unethical business practice of the day: “comp checks.” Like me, he experienced a growing frustration in recent years with the form-filler mentality that many appraisers and users of appraisal services have embraced.
Jonathan Miller

There is a lot to be said about the growing pains and transitions that the housing industry is currently experiencing. Surely there is enough blame to go around. The borrowers exceeded their budgets, mortgage brokers coerced/pressured Appraisers for value to make the deal work (regardless of the moral implications), banks offered faulty sub-prime packages with minimal qualifications or safeguards and Appraisers promised/pushed values like a rocket to the moon. But through it all, there has been one main complaint from the honest Appraisers who saw the light…comp checks.

Comp checks were visible at the heart of all these problems. Even throughout the housing crisis, instead of the focus being placed on risk management, it was always placed on value, i.e. “making the deal work”; whereas common sense should have indicated an attitude of making sure certain assets are protected. Surely, there are a good sum of Appraisers that are bitter and worn down on the comp check issue because it seems like we speak out constantly and nothing happens.

But is that really true? I think not.

When the original HVCC was written it addressed pressure, but not comp checks. We rose to the occasion and made our voices heard and now there is specific verbiage about comp checks included. Not only were our voices heard, but they were taken seriously well after the initial comment period of the original draft. Is this not proof that our voices are indeed powerful? That if we but simply do our small part and write a letter or two each, that we can accomplish great things?

For several years it seemed like Appraisers were split on how to resolve the many flaws in the industry. For the most part, we could not agree on any course of action. However, it does appear that we could agree on sending an endless stream of letters to our leaders and the people in charge of drafting these rules that would ultimately regulate us. The HVCC is not perfect, but one thing is clear, we brought about some of the changes that we so desperately wanted.

I think the power that has been lent to our collective voices has been augmented by that of the housing crisis and it still is. So why not take advantage of this great advantage (augmentation) and push the envelope this next month. We can push our law makers to not only make rules, but make comp checks downright illegal.

Over the past several years there’s been arguments among Appraisers on whether comp checks were in compliance with or against USPAP. There was arguments whether it was right or wrong. Or if it’s a disservice to the client or an actual service to the client. All of those arguments in my opinion should be moot, for I must point out that the bigger picture here is that comp checks were and still are being used for mortgages, thus focusing on hitting values; instead, the focus should remain on honest opinions of value in order to protect the banks assets.

It is bad enough we have this constant threat from borrowers and mortgage brokers looming over our heads if we don’t hit value, so with that in mind; it might just be the perfect time to hit a home run with illegalizing comp checks.

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[Government Bailout Leviathan] Short Huge, Brutish, Nasty

November 17, 2008 | 12:21 am | nytlogo |

In many ways, the free market financial/mortgage system, without regulatory oversight could be described as Nasty, brutish and short:

Nasty, brutish and short aren’t a firm of particularly unpleasant lawyers but a quotation from Thomas Hobbes’ Leviathan, or the matter, forme, and power of a commonwealth, ecclesiasticall and civill, 1651. The fuller quotation of this phrase is even less appealing – “solitary, poor, nasty, brutish, and short”. Hobbes described the natural state of mankind (the state pertaining before a central government is formed) as a “warre of every man against every man”.

I was struck by a recent case of massive number numbness that was inflicted upon me when I saw the Fannie and Freddie losses for the 3rd quarter:

Fannie Mae: ($29B)
Freddie Mac: ($25B)

For perspective, Fannie Mae and Freddie Mac each averaged a $2B loss per quarter in the preceding three quarters. The GSEs were bailed out in early-September and represented the last 3 weeks of 3Q. I know the Freddie loss just reported included a $14B non-cash charge so it lost about $12B cash-wise.

The current administration is leaving still advocating free markets, which a disconnected concept when compared to the situation we find ourselves with – day late and a few trillion short. Dismal Scientist calls it right.

I remember when President Bush decided to call a summit 3 weeks ago, during a crisis which needed daily attention:

The first decision I had to make was who was coming to the meeting. And obviously I decided that we ought to have the G20 nations, as opposed to the G8 or the G13.

hmmm…what flavor of free market thinking will work going forward that didn’t work before?

One of the things we did, we spent time talking about the actions that we have taken. The United States has taken some extraordinary measures. Those of you who have followed my career know that I’m a free market person — until you’re told that if you don’t take decisive measures then it’s conceivable that our country could go into a depression greater than the Great Depressions. So my administration has taken significant measures to deal with a credit crisis. And then we worked with Congress to deal with the credit crisis, as well.

Call me crazy, but how about simple common sense oversight? Despite the actions of the administration, I find that Congress is finally starting to make some sense.

Here’s a series of plans to fix housing summarized by Capital Commerce.

What worries me about much of this is that government has a hard time “thinking big” which should not be confused with “spending big.” Evidence of this is found with Treasury’s foreclosure plan versus FDIC’s Blair. Bair wants to think big.

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[Straight From MacCrate] International Fair Value Accounting And Reporting

September 16, 2007 | 9:32 pm | irslogo |

Jim MacCrate, MAI, CRE, ASA, has worn many hats in his career. He taught a number of the appraisal classes I have taken through the Appraisal Institute and I think he is one of the few people who actually understands the “J-Factor.” His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime.

This week, Jim tries to tackle accounting standards and their contributory residual confusion.
…Jonathan Miller

International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). The objective of these Standards that are applicable to leases, property, plant and equipment, investment properties, and intangible assets are to prescribe the proper accounting for reporting purposes and the related disclosure statements in order for users of the financial statements to obtain information about an entity’s investments. The primary purpose in accounting for real property and intangible assets is to identify the assets and their estimated values and the depreciation charges and any impairment that result in losses. When a foreign investor acquires partial interests in real property, the valuation issues can be extremely complex which, if not calculated correctly, can result in inaccurate results that can impact the income and financial statements of the reporting entity.

For example, a foreign investor acquires a retail condominium unit or a penthouse office unit in New York City. How does one estimate the contributory value of the site for purchase price allocation purposes if the retail unit is on the first floor or if an office unit is on the top floor overlooking the Hudson River? What is the contributory value of the common elements? For tax purposes, all investors want a lower site value and a higher value associated with the improvements in order to maximize depreciation which will lower the tax bill due to Uncle Sam and, possibly foreign taxing authorities.

Recent transaction prices for development sites in prime locations in New York City ranged from $400 to $875 per square foot of floor area permitted as of right for high rise mixed-use projects. Clearly, the contributory value of the site for the first floor retail use on Madison Avenue would be substantially higher than the average price paid per square foot of floor area permitted since the rents obtained for first floor space can be sky high in comparison to the rent per square foot collected for the upper floors for office or residential use. The following chart summarizes the average asking retail rent for selected locations in Manhattan in early 2007 in comparison to 2006 as reported by The Real Estate Board of New York:

The asking office and residential rents in the same locations for the upper floor space are well below the rents that can be achieved for the first floor space. The average asking rent for office space in Midtown was approximately $79.00 per square foot in February 2007. In addition, many retail tenants are paying all expenses while tenants on the upper floors may only be paying an increase in operating expenses. The construction costs associated with retail space are also generally lower. As a result, the residual income to the retail site component after allowing for a proper return on the invested capital in the retail improvement component would be substantially higher than the residual income to the office or residential site component after allowing for a proper return on the office or residential improvement component.

The Appraisal Institute indicates that there are six methods that are available to estimate the contributory value of the site to the total value. These include the following:

  • Sales Comparison Approach
  • Extraction
  • Allocation
  • Land Residual Technique
  • Ground Rent Capitalization
  • Subdivision or Development Method

The methods to estimate site value are more fully described in the article Land Valuation and Purchase Price Decision but it is clear that in cities such as New York, Chicago, Washington, D.C. and San Francisco it is extremely difficult to apply any of these approaches to allocate the purchase price between the various components in a condominium project. The land residual technique, if correctly applied, may provide a reasonable indication of the contributory value of the site to the overall value on an individual condominium unit. Alternatively, the estimated contributory value of the site might be estimated by the relative undivided interest in the condominium based on relative sale prices of the various units. If this is the case, then, the value contributed by the site to the retail unit is clearly different than the average price paid per square foot of floor area permitted as of right.

The United States standards are developed by the Financial Accounting Standards Board. The objective is similar and numerous standards have been issued to provide guidance to practioners which is clearly a duplication of efforts to protect investors and the general public. These pronouncements include the following: FAS 141, FAS 142, FAS 144, and FAS 157 with more to follow I’m sure to confuse the general public and the investors even more. Be that as it may, the appraisers that are involved in preparing and reviewing real property valuations, including the I.R.S. and taxing authorities, for purchase price allocation and other purposes should be careful. Because of the intricacies involved, the calculations may affect all taxpayers, investors and the general public.

Special thanks to Richard D. Wincott, MAI, CRE, PricewaterhouseCoopers LLP., William Kinn, MAI, CRE, Kinn Real Estate Counselors LLC., and Joseph Petrocine, MAI, Regional Appraisal Associates, for their input.

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[Solid Masonry] We Are At Oneness With Everything And There Is Beauty All Around Us Why Don’t We Speak Like That?

March 21, 2006 | 10:31 am |

John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his weekly post called Solid Masonry. This week John addresses the lack of community within our profession. Jonathan Miller

Source: Univ. of AZ

A couple of days ago I was reading the most recent edition of Working RE, a quarterly publication put out by Editor, David Brauner and the folks at the Organization of Real Estate Professionals. This self-promoting publication focuses on issues concerning real estate appraisers, home inspectors, and well, self-promotion of the products and services they sell to these professionals.

In an article written by Mr. Brauner himself, Best Of Show Taking Appraisal Industry Pulse [Working RE], he sums up some highlights of the most recently held annual Valuation Conference.

While the article touches on various items of interest, the very last summary jumped off the page and smacked me in the face, and I mean hard.

In the article David quotes Clark Gimple, IFAS of Texas, who said, “Appraisers badmouthing their own are fanning the flames and putting the profession in danger of losing its already damaged credibility.” Mr. Gimple goes on to say, “You don’t hear accountants, lawyers and doctors emphasizing the negatives in their profession. Even if they have contempt for one another, there is a professional code not to talk dirt in public. Appraisers should take a lesson from that playbook. Also, mortgage brokers, lenders, appraisal management companies and other clients need to know that like doctors, lawyers, etc., the appraiser is in charge of the appraisal. Do other professions allow their clients to set appointment times, turn-around times, fees and such? And you wonder why you get no respect.”

Now there is no doubt our industry has its fair share of “bad apples” and there is no reason we should not strive for progress. But maybe our profession is no worse than any other profession. We’ve all heard war stories and off color jokes about lawyers, doctors, politicians, real estate agents, undertakers and all kinds of professions. If the truth be told, most of us have shared such stories, including yours truly. Of course late night talk show hosts use many such jokes in their opening monologues and would shutter at the thought of giving up such easy and popular targets.

Reflecting on Mr. Gimple’s statements, I started thinking about various words associated with our industry and I decided to run a test. I googled a simple, positive statement, “good real estate appraiser” [Google] and to my great surprise, came up with 81,400 hits. While this many hits gave me great joy at first, I quickly discovered that most (no I didn’t read them all) were related to websites of self-promotion, rather than objective commentary about us or our profession.

So Clark is right. We appraisers do lack fundamental traits common to most professions, a sense of common cause and a code of mutual respect. Effectively, we fail to see ourselves at oneness with everything and with beauty all around us.

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[Solid Masonry] Hole Sweet Hole

February 7, 2006 | 8:09 am |

John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his inaugural weekly post called Solid Masonry.

Jonathan Miller

Source: NYT

This past Sunday the New York Times ran an article Talk About Renting a Hole in the Wall in which a group of architectural students stumble upon an experiment which reveals just how hot, or desperate, the New York City housing market really is. Up late one night (perhaps a little too late) the three students amuse themselves by stuffing a mattress into a transom over a bedroom doorway. Having decided it was “not half bad” in terms of comfort; one of them posts an ad on Craigslist to see if anyone else would find interest in the “elevated mattress” at $35. In a city where most of us think we’ve seen it all, it should be no surprise that about a dozen people responded to the ad. While the students never followed through on actually renting out the space, they are clearly on to something.

And like others in real estate, I’ve seen my share of “creative” housing, including:

  • A storefront with 9-10 mattresses laid out on the floor of the basement and offered as partial compensation to the workers of the restaurant above. While I was never given a dollar amount for the “compensation”, I was told that use of the single toilet and sink at one end of the basement, which was shared by all, was included.
  • While inspecting a house in a nice suburban neighborhood, I opened a hall closet (about 3 feet deep and 8 feet long), only to find a few clothes hanging on the rod. Upon looking down I spotted a twin size mattress on the floor, to which the owner smiled and said she ‘ran out of bedrooms for her kids’.
  • And my personal favorite was a single family home divided into many small rooms. Each room had a bed and most beds were occupied. The owner boasted how some of his tenants had “sublet” their rooms, in 12 hour shifts. While there was a small surcharge to these enterprising individuals (supposedly for the added use of the common kitchen and bathrooms, the landlord was proud that of his tenants had found a way to reduce their own weekly rents.

To be clear, we never completed any of these appraisal assignments, as the loan was dead once the lender realized there was illegal use of the properties. (Or more likely, once they realized we were not willing to overlook the illegal use.)

But this brings the meaning of “highest and best use” to a whole new level. Let’s face it, the motivation here is much higher rates of return, legal or otherwise. As and example, an apartment can be rented at $1,800 per month to one tenant, or it can also be rented at $3,225 per month to six individuals ($125 per week x 6 people x 4.3 weeks per month = $3,225). It makes sense some landlords are willing to take greater risks in return for equally greater rates of return, especially in light of the high price of investment properties, when compared to the low rates of return on investment under a conventional (legal) rental analysis.

The fact is there is an urgent need for truly affordable housing, no matter how unsafe or unreasonable the conditions might be. When the incomes of poor individuals and families are unable to keep pace with legal rents, the market has demonstrated they are clearly willing to accept less in return. Much less! Wouldn’t a city like New York be better off promoting the development of safe and clean SRO’s, rather than ignoring such sheer demand? Shouldn’t there be consideration for the development of smaller units, even if they don’t meet current “standards”? I’m talking about building new complexes with single rooms, no bigger than 5′ x 10′, with small Pullman style kitchens and maybe a toilet in a closet.

At some point we need to stop debating about what people want and start providing them what they need. If three architectural students in a late evening lark can create such a simple test to demonstrate how desperate the housing crisis is, shouldn’t we as a society rise up to the challenge and meet such a glaring need?

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