How to price trophy properties

Herald- TribuneJuly 30, 2012
The heady prices of some recent transactions -- including $88 million for a penthouse at 15 Central Park West in New York City and the more than $90 million contract for a penthouse at One57 -- are emboldening some owners to test the market with sky-high price tags.

Or, as Shaun Osher, the chief executive of CORE, likes to say, "A lot of high-end buyers and sellers want to get on the gilded bandwagon."

Because of these intoxicating numbers, brokers say a new handful of properties in Manhattan are about to come on the market with listing prices of $90 million or more.

In Miami, too, trophy condominiums and single-family homes are being listed and sold for record numbers.

On paper, a good part of the optimism is based on economic problems elsewhere in the world that have led buyers to high-end real estate as a financial safe haven from stagnant stock markets, low-return bank accounts and onerous tax regimes.

But precisely how do brokers set these prices, particularly since many of the usual formulas and calculations do not add up?

As it turns out, pricing so-called trophy properties is an art, not a science.

"What makes a trophy property is the fact that it really is an intangible, priceless object, like a piece of art," Osher said. "This part of the market is not a rational decision, it is an emotional one."

Those intangibles include a subjective measurement of factors like building quality, views, ceiling heights, finishes, light, air and layout.
Square footage and outdoor space are factored in, as are the history and "pedigree" of the building, brokers say.

Cathy Franklin, a broker at Brown Harris Stevens, says she typically brings in four to six of her peers to help her price a property.

"You always have to look at views," she said. "You could see double or triple the price with an apartment with views versus one that doesn't have views."

Jonathan J. Miller, the president of Miller Samuel, a real estate appraisal firm, doesn't think the soaring asking prices are based on much more than a high-end herd mentality.

"If they got it, I am going to get it," the thinking goes, Miller said. "It is all ego management."

Within the appraisal industry there is a term for listings based on loose associations to reality, he said: "P.F.A.," which stands for "Pulled From Air."

"Take the highest sale you can find and apply some methodology in a very subjective way to talk yourself up to this bigger number," Miller added.

Some analysts believe the sale of Sanford I. Weill's one-of-a-kind penthouse, at 15 Central Park West, to Ekaterina Rybolovleva has set a new benchmark, at more than $13,000 a square foot.

"They are citing it constantly," Osher said.

No subsequent sale has yet reached much more than $10,000 a square foot, but brokers and appraisers say they believe the Weill-Rybolovleva benchmark has allowed prices to soar higher.

Meanwhile, buzz and bravado often go a long way for a property.

Nick and Christian Candy, the brothers behind the One Hyde Park development in London, caught the attention of the real estate world when they set several high-water marks in that city with sales above $10,900 a square foot.

They built a development tailor-made for the tastes and whims of jet-setting billionaires, said Peter Bevan, head of the Mayfair office of U.K. Sotheby's International Realty, persuading buyers with "rarity, quality of finish, facilities, services" and a "take it or leave it" attitude.

Brokers in New York have been looking at One Hyde Park as an example of how one development can set new records.

"Here, everybody is speaking about that project," Franklin said.

But success ultimately may depend in part on how many other trophy properties are on the market.

Osher, for instance, said he believes there were still 15 to 20 such trophy properties in Manhattan that have not traded hands recently, with new ones, like the $50 million penthouse at Walker Tower in Chelsea, starting to become available.

Franklin, the Brown Harris Stevens broker, thinks there could be as many as 30 properties available, if the owners of rare Fifth Avenue and Park Avenue penthouse co-ops decided to sell.

But will international buyers become turned off by the aggressive pricing of New York and Miami real estate?

If there is something brokers agree on, Osher said, it is that "there are more billionaires in the world than trophy properties."

But Howard Lorber, the chairman of Prudential Douglas Elliman, a prominent brokerage, says the well-heeled are not fools, either.

"The dream of every person that has something to sell is coming up with some international person that is going to pay substantially higher than what the market really is," he said.

"I always tell them that if those people did that, they wouldn't be rich, and they wouldn't be able to afford to buy such an apartment."

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