April 8, 2014

When One Renovation Isn’t Enough

April 8, 2014

When One Renovation Isn’t Enough

A new sales tactic involves renovating new-construction homes. A New York penthouse in a five-year-old building is in the midst of a gut renovation; a circa-2008 Miami building’s penthouses get upgrades. Photo: Evan Joseph/Douglas Elliman Real Estate

With water views, loft-like spaces and car-elevators that ferry residents’ vehicles directly up to their apartments, 200 Eleventh Avenue was one of New York’s most talked about developments when it hit the market in 2009.

Now, less than five years later, one of penthouses in the building is back on the market for $23 million—and in the midst of a massive renovation. The condo’s listing agent and its owners say that in today’s competitive marketplace, newish just isn’t the same as brand new. “They are gut renovating an already gorgeous apartment to stand out from the crowd,” says listing agent Ryan Serhant, who also appears on Bravo’s reality TV show “Million Dollar Listing.”

To attract higher-end buyers, developer Gold Krown decided to spend $500,000 to renovate the 11 penthouses at 4 Midtown, a Miami building that was originally finished during the downturn. Vanessa Rogers/Midtown Miami Residences

With the real-estate market in many U.S. cities on a hot streak, some sellers are trying to compete by renovating places that were in great shape to begin with. Owners are ripping out kitchens and bathrooms remodeled a couple of years ago, and re-configuring layouts in new homes and condos.

Agents and developers say the impetus for the renovations arms race is competition from a growing number of highly elaborate high-end developments. “It’s a real challenge for everyone right now to keep up with the very high end,” says Leonard Steinberg, a New York agent with Douglas Elliman. “It’s as if a beautiful Mercedes comes up for sale, but next week there’s a Rolls Royce.”

And while housing inventory has declined in the past year or two nationwide, it has begun to increase in the past couple months, particularly in the upper price ranges, according to data from The number of listings under $1 million nationwide was up 2% in February 2014 from a year ago, while the number of listings priced over $1 million was up by 10%. The increases are even greater at the very top end of the market in Manhattan. The number of homes on the market priced under $3 million declined 21.7% in the last quarter of 2013 versus a year prior, according to appraisal firm Miller Samuel. But inventory for homes priced over roughly $3 million grew 24.9%.

Lisa Lippman, an agent with Brown Harris Stevens in New York, adds that international buyers, who have played a big part in today’s high-end boom in cities like Miami and New York, are particularly drawn to brand-new construction, partly so they don’t have to deal with the headaches of updating or renovating from afar.

Ms. Lippman says renovation costs can run from $300 to $700 a square foot or more for condos. Though upgrading an already nice apartment may help grab attention, it doesn’t always translate into significant profits. “I cannot tell you that renovating an apartment to sell it is worth it,” Ms. Lippman says. Often, sellers will make the mistake of putting more into a place than they can realistically recoup upon resale.

Sometimes the strategy pays off. Agent Frances Katzen says she advised the owners of a six-bedroom penthouse just off Manhattan’s Central Park West to redo their thoroughly renovated place again, arguing that their unit didn’t maximize its Central Park views and that its many small rooms “felt like storage units.” The seller, whom she declined to identify, spent another $70,000 to create a more open, modern feeling.

Three weeks after hitting the market, the apartment attracted two offers and recently sold for $13.1 million. The sellers had listed the apartment about two years ago, before their most recent upgrades, with no offers coming in above $9 million, according to Ms. Katzen.

The owners of the penthouse at 200 Eleventh Avenue are Margarette Lee and Young Woo, two of the building’s original developers who in 2012 bought their partners out of their jointly owned 3,248-square-foot unit. The developers knew that when it came time to sell that they would want to position their James Bond-esque condo, which includes a stainless-steel garage that has a view of the skyline, as a unique trophy that would stand out from everything else.

The result is even more futuristic. On a recent morning, construction workers prepared to install a “sky vault”—a glass-encased box containing a staircase and topped by a hatch that opens up to the condo’s second floor with the push of a button. The apartment is gaining almost 350 additional square feet of living space by removing the original staircase. (The unit also has an elevator.) White Brazilian teak floors replaced dark hardwood floors. Renderings of the soon-to-be-finished space hung on an office wall.

In addition to views and location, buyers today “are also looking for that experience, that specialness, that sets them apart from anyone else,” says Ms. Lee, who says she and Mr. Woo have spent several million dollars so far on the renovation. “It’s so great if you’re doing something that nobody else is doing.”

“It’s a real challenge for everyone right now to keep up with the very high end. It’s as if a beautiful Mercedes comes up for sale, but next week there’s a Rolls Royce.”

—Leonard Steinberg of Douglas Elliman

In some cases, developers are upgrading spaces that previous owners finished less luxuriously when the housing market took a dive. In Miami, 4 Midtown’s units were originally finished in 2008, in the midst of the city’s downturn. The building was sold and the condos became rental apartments.

The building was eventually purchased by Gold Krown, another developer, who put most of the apartments back on the market in 2012, with units asking between the mid-$300,000s to the mid-$500,000s. Though it is now 95% sold, the developer is spending another $500,000 to renovate the building’s 11 penthouses to attract higher-end buyers.

In two-story penthouses, glass staircase railings replaced metal ones. Eleven-inch-wide wood baseboards replaced thin plastic moldings. Kitchens were swapped out for higher-end versions by Ornare, a contemporary Brazilian designer known for a minimalist, sleek look. Buyers also get a free Vespa with purchase. “It’s easier to sell a new or looks-new building than an older building,” says Ronnie Krongold, managing partner of Gold Krown, who adds that the neighborhood became more upscale in the few years since the building was originally constructed. Measuring as large as 3,500 square feet, the penthouses are priced between $750,000 and $2.4 million.

The Viceroy, a 152-unit hotel and condominium in Snowmass, Colo., was designed in a modern, mountain style when it opened in 2009, with earth-toned furnishings and décor. Sales were slow, with precontract reservations coming in at about $1,700 a square foot. The building went into foreclosure and none of the units closed; they were rented as hotel rooms

Related Companies, the building’s current owners, recently decided to update the four-year-old complex and put the units back on the market. It replaced tans and browns with trendier grays in paint colors, décor and furnishings for a more contemporary feel, says Dwayne Romero, president of Related Colorado. The biggest condos now include large handblown glass chandeliers. To appeal to larger families, multigenerational travelers and foreign buyers who may want space for nannies, teenagers or in-laws, layouts were reconfigured so that apartments could be combined with smaller studios for optional, additional space.

Furnished studios through four-bedroom units are priced around $900-per-square-foot—still far below their previous peak but up about 10% since the renovations were completed. “You need to stay current and stay connected with what is the design appeal of today and tomorrow,” says Mr. Romero. So far, 69 units have been sold or are in contract.

Source : Wall Street Journal