Twinkies Enabled the Sale of the Playboy Mansion
It’s been a confusing week for me.
I’ve been trying to reduces the sugar in my diet and I actually feel much better. But then I was interviewed by the Wall Street Journal  about the recent sale of the Playboy Mansion  in Holmby Hills, Los Angles, California. Apparently the next-door neighbor  who restarted the Hostess brand  purchased the $200 million listing for more than $100 million but the price was not disclosed.
In other words, the sale of Twinkies made this all possible.
And if that wasn’t enough to digest (sorry), on the same day I read that Hostess announced a “recall of 710,000 cases of packaged baked treats , which aren’t supposed to contain any peanuts. These batches, however, contain flour that may be contaminated with peanut residue.” Don’t forget to read the Playboy Mansion Yelp  reviews.
This listing came on the market in January 2016 and reported as being in tired condition and encumbered with a life estate that allowed Hugh Hefner to live in the house rent free for the rest of his life – he is 90. The fact that a $200 million listing sold in 6 months in poor condition as a life estate for not much more than half the list price suggested that the seller was very serious yet wanted to see if they got lucky (I assume many who have visited this home over the decades felt the same way).
I have long talked about the lack of a celebrity premium and the myth of a wide and deep $100 million market. This sale is consistent with that way of thinking. Even more importantly, this sale didn’t subliminally motivate me to eat a Twinkie.
Go Big or Go Home
While we’re at the intersection of junk food and supper luxury real estate, let’s watch an over the top video used to market a super luxury California home.
And when that $60 million weekend home you’ve never used isn’t quite right, just tear it down  and start over. After all, it’s only money.
Source: CNBC .
And let’s build even more  supply in the already bloated Manhattan Billionaires Row  super luxury condo sub-market. A new development site was revealed this week. Once development momentum begins, it is hard to turn it off before the point of no return.
Switching the Conversation Away from New Development
- Manhattan re-sale apartment inventory is no longer scarce
I published my latest ‘Three Cents Worth’ column on Curbed New York. I took one of my favorite charts and modified it to only reflect Manhattan re-sale inventory by month. The conclusion? The days of chronically tight re-sale inventory is over. After inventory bottomed in 2013, it edged higher for the next two years but remained woefully low. In 2016, re-sale supply has jumped, nearly reaching the average level since 2009, when there was a Mount Everest of listing inventory following the collapse of Lehman. Here’s my column: In a Sea of New Development, NYC’s Resale Apartments Are Having a Moment .
- The current Manhattan, Brooklyn & Queens rental market
We published our May 2016 rental report yesterday: Elliman Report: Manhattan, Brooklyn & Queens Rentals 5-2016 
MANHATTAN As mentioned in the prior month’s report, rental price trends remained choppy. Price trends are expected to move “sideways” over the coming months following a two-year trend of rising rents that ended in March. After factoring in the jump in concessions which included free rent and broker commissions, the net effective median rent for May slipped 0.4% to $3,358 from the same period a year ago… 
BROOKLYN Brooklyn median rental price expanded for the fifth consecutive month despite the expanding supply and the increased use of landlord concessions. Listing inventory increased 20.6% from the same month a year ago. The market share of landlord concessions increased to 8.8% from 1.5% over the same period. The net effective median rent – face rent less landlord concessions – was $2,843, up 3.6% from the same period last year… 
QUEENS Median rental price trends in Northwest Queens moved higher on a year over year basis. This was in contrast to declining trends year to date. Median rental price increased 5% to $2,727 and average rental price increased 12.8% to $3,101 respectively from the same month a year ago. Price trends also moved higher year over year across all size categories. Price gains were driven by a shift in mix caused by a 51.5% market share of new development rentals, the highest in two and a half years, despite a 40.2% increase in inventory… 
There was a great chart in the Bloomberg article on our report release yesterday: Manhattan Landlords Boost Renter Incentives in Apartment Glut  that focused on the growing use of concessions by landlords.
In addition, there was another version of that chart  designated as “Chart of the Hour” across the Bloomberg Terminals worldwide. Not too many things rank up there ahead a good chart in my book, Twinkies included.
Value Drill Down: Purple Formica Edition
I was reading Manhattan real estate publication Luxury Listings NYC  and stumble across one of my favorite valuation stories of all time. I had shared it with the New York Times a few weeks ago for an excellent article on renovations that add value to a home .
It comes down to a matter of taste. Miller presented a wacky example of a Greenwich Village homeowner who had a $30,000 entertainment system built-in made of purple Formica for his home. (Spoiler: the owner was not Prince.) “The owner thinks the value is the apartment plus $30,000,” Miller told the Times. “The buyer is thinking it’s the value of the apartment minus $3,000 to remove it and repair the wall. Here lies the problem.”
Now look at how much more it costs to get another bedroom . DNAinfo explored this topic using data I provided. There is a much bigger jump to the next bedroom in the sales market than the rental market. Here’s the grid.
The ‘Amityville Horror ‘ House is for sale again. What a tragedy . I remember taking an appraisal class in 1989 in Atlantic City and the instructor said he appraised it – this class was back in 1989. While I haven’t looked into this house specifically I am about to appraise a Manhattan townhouse and the house next door had a murder suicide 20 plus years ago. A few years after the tragedy, that particular home sold for market rate. One sale doesn’t make a trend, but like the celebrity premium, I am of the view that the value impact in tragedies like this, dissipates substantially over time.
Let’s explore the concept of free appraisals. The idea that “you get what you pay for” doesn’t seem to apply to real estate. Appraisers have been under siege for the past decade and the industry is decimated. There are only a few good appraisers left in each market as lenders and the Appraisal Management Companies (AMCs) they use have pressed hard to convert a professional expertise to a commodity. The only catch is that the appraiser has to work for half the market rate and they keep the other half. In addition, we have Estimates that are now so ubiquitous most consumers just assume the results are right. Tom Horn of the Birmingham Appraisal Blog  writes a good overview of the phenomenon of “free” home appraisals.
A byproduct of commoditizing appraisals since the financial crisis through AMCs has created a new army of form fillers that don’t do appraisals. As a result, they are not responsive to changing market conditions. I read articles like this all the time: Low appraisals threaten central Ohio home sales . All participants in these types of articles just can’t understand why all of a sudden there is a burst of inaccurate appraisals across the market. Doh!
- 90% of bank appraisals are now done by AMCs since the financial crisis versus the inverse before the financial crisis.
- AMC appraisers generally work for half the market rate without AMC involvement, reducing the quality of appraisers staying in the profession.
- AMCs and banks require unrealistic turn around times that incentivize these less qualified “experts” to cut corners.
It’s in everyone best interest to protect the neutrality of the appraiser which would increase industry competence. Unfortunately I think this appraisal battle has been lost and banks have won.
Terms We Are Sick and Tired of in Housing Conversations
Millennials – ugh
Here are two ways  to look at generational time spans. Beyond this, I am sick of the topic.
There is a great New York Times read: A Young Man Quits His Old Life and Goes West . And here’s one of the short films he made on his journey but it is not about his journey.
Gentrification – Ugh. But there is a fascinating story from 99% Invisible called “Holdout .” This is one of my favorite podcasts. Worth a listen.
If you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here . And be sure to share with a friend or colleague. They’ll feel like eating a Twinkie, you’ll be glad you’re not a Playboy and I’ll go buy a purple formica cabinets.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc. 
Real Estate Appraisers & Consultants
Reads, Listens and Viewings I Enjoyed
- DAVID ROSENBERG: I don’t want to alarm anyone but … [Business Insider] 
- Fuck You, I’m Not A Millennial [Medium] 
- Billionaire Upgrades To $270 Million House Because The $49 Million One Felt Cramped [Dealbreaker] 
- Palm Beach home where Richard Nixon visited sells for $13 million [Palm Beach Daily News] 
- In Manhattan, High-End Luxury Makes Way for Mid-Market Luxury [Mansion Global] 
- This Video for a $48.5M Los Angeles Home Is Bonkers [Realtor.com] 
- Get a Cameo in This Web Series About NYC’s Gentrification [DNAinfo] 
- Some U.S. nuke testing sites are now less radioactive than Central Park [ScienceMag.org] 
- The Man Who Destroyed Montauk . . . [Vanity Fair] 
- Documentary: Litefeet – Sound of the Subway [YouTube] 
- The Playboy Mansion Has a Buyer: a Twinkie King [NY Times] 
- Busy Billionaires’ Row area could get another pricey project [Crains New York] 
- Jackie Kennedy’s D.C. Mansion is On the Market [Curbed DC] 
- With Connecticut Foundations Crumbling, ‘Your Home Is Now Worthless’ [NY Times] 
- Playboy Mansion to Sell to Neighbor for Over $100 Million [Bloomberg] 
- Twinkie co-owner buys Playboy Mansion [CNN/Money] 
- Hostess Recalls Ding Dongs, Zingers, Donuts, And Chocodiles For Possible Peanut Contamination [Consumerist] 
- AvalonBay Says Rent Revenue to Be as Expected Amid Share Selloff [Bloomberg] 
- Steve Cohen tears down mega-mansion to build even better one [NY Post] 
- Ivy Zelman: Housing Hazards and Opportunities [Barrons] 
- Vancouver mayor calls on federal and provincial governments to intervene in hot housing market [Globe and Mail] 
- A Young Man Quits His Old Life and Goes West [NY Times] 
- Low appraisals threaten central Ohio home sales [Columbus Dispatch] 
- What’s the deal with FREE home appraisals? [Birmingham Appraisal Blog] 
- Spotlight: Adam Caslow Carries on ‘A Lox’ of History at Acme Smoked Fish [6sqft] 
- Podcast: Holdout [99% Invisible] 
- House Hunting In Denver Just Got Tougher [Forbes] 
- U.S. Houses Are Still Getting Bigger [WSJ] 
- Do You Live in a Mail-Order Sears Kit Home? These House Hunters Will Find You [Atlas Obscura] 
- The home from ‘Amityville Horror’ is on the market for $850,000 [NY Daily News] 
My New Content, Research and Mentions
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 5-2016 [Miller Samuel] 
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 5-2016 [Douglas Elliman] 
- 3CW Column: NYC’s resale apartments are having a moment [Curbed NY] 
- Bucking trends, Manhattan rents stagnate at the start of summer [Curbed NY] 
- Chart: May Was a Renter’s Market for Manhattan Apartment Seekers [Bloomberg] 
- Manhattan’s luxury market is sputtering back to life [The Real Deal NY] 
- Manhattan Landlords Boost Renter Incentives in Apartment Glut [Bloomberg] 
- Manhattan Rents Get Cheaper for Rich People and Higher For Rest of Us [DNAinfo] 
- Inertia: Manhattan resi rents stay static [The Real Deal NY] 
- Manhattan Rents Dip at Higher End But Continue to Rise at Lower End [DNAinfo] 
- Here’s How Much It Will Cost You to Get an Apartment With More Bedrooms [DNAinfo] 
- Home prices keep rising — mostly for the rich [Marketwatch] 
- Playboy Mansion’s Neighbor to Buy the Property [WSJ] 
- We don’t want a purple Formica entertainment center either [Luxury Listings NYC]