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116 25th Street – An interesting case study for real estate in July

There are ebbs and flows to a real estate market – good times to sell and good times to buy. Usually, the month of July is a little funky in real estate with the kids are out of school, the 4th, and family vacations.

One of the more intriguing trophy properties that has recently closed this month has been 116 25th Street. This corner lot, Manhattan Beach property is on a prime walk street steps away from the sand, and boosts an impressive 5,000 square foot layout with breathtaking ocean views. With 5 bedrooms, an open kitchen and living area, as well as sophisticated wine cellar, this property has all the bells and whistles an upscale buyer could ask for.

The question is, how did the market respond to its $9,800,000 price tag, which, relative to the comparable properties, is pushing the upper echelon of value.

The market proved to be a bit resistant.

Taking a look at the comps, there is one property that really sticks out – 113 29th Street.

Although this property is not new construction (built in 1937), it sits on a very comparable location relative to our 25th Street subject property. Essentially, it’s in the exact same corner lot location on a similar walk street, but just 4 blocks north. We’re talking about a 6 bedroom, 4 bathroom turnkey home with similar breathtaking views. This historical gem recently closed for just under $4.8 million dollars ($4,725,000 to be exact).

It’s assumed that a premium should be assessed to new construction, but is a $5,000,000 premium warranted?

Apparently so…

After sitting on the market for 80 days, this 25th Street property finally found a match (who was able to snag the property at a $300,000 discount). When the dust settled, 116 25th Street closed for $9,500,000.

Tying this all together, this 25th Street closing makes the 29th Street property all that much more intriguing (and this is the reason we LOVE real estate). From a development perspective, you’re usually able to build new construction on a price per square foot basis. Let’s use $400/square foot as our common denominator.

Let’s say you bought the 29th Street property last year for $4,725,000 and had the itch to develop. Based on this property’s lot size (relative to our 25th Street subject property), you knew you had the ability to build a 5,000 square foot home. At $400/square foot, that’s a build cost of $2,000,000. Let’s throw another $500,000 for your soft costs, holding costs, property taxes, etc. Therefore, a developer’s total cost would run right around $7,225,000.

And then after ALL this work, this beautiful 25th Street properly closes right before you want to bring your brand new development to market – a direct comp justifying a $9,500,000 sales price. Boom, you sell your property for $9,500,000 as well, and in turn, profit $2,275,000, which comes out to a 31% return on your initial investment. Not a bad day in the office.

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