Generally I find there are two groups of townhouses - 1) ones that need $500K+/- in renovations, and 2) ones that don’t (at least not right away).

On the high end…

The very first one, 226 Lenox was a bit of a special case - it’s probably at the high end of the ones needing around $500K in renovation. Among the others you can see the trend is generally up (slightly). The standard price seemed to be $1.65M (no matter what the size, oddly), but now that’s been broken and prices are just under $2M.

On the low end…

The first thing to notice is that this is still a great time to buy a townhouse shell in Harlem. There’s over a million dollar difference between the price of shells and the high end places, but you can renovate a shell into a high end townhouse for about $600-$800K, so you’re likely to net between $300K and $500K on the renovation.

Price per square foot is tricky with shells. Taking our place as an example - officially it’s 4 stories and 3605 sq. ft. However, in actuality it’s 5 stories and 4500 sq. ft. Oddly, I thought the number of stories would get fixed as we went through the DOB plan approval process, but I saw the plan examiner look right at the plans and call it a 4 story building. However, they are now billing it as having 4,500 sq. ft. - at least that much is getting corrected. What this means is as you look at townhouses you need to calculate the real square footage and determine your own price per square foot.

The bottom line is, like the upper end, there is an upward trend in prices for shells. Not counting the fully occupied SRO (which you wouldn’t want to touch with a 10′ pole unless you wanted to be a landlord, not a home owner), our place was pretty much the low price on a price per square foot basis at $117/sq. ft. The others since that time have been more money on a price per square foot basis (which is how you really need to price buildings like these). Assuming the recent ones are 4 story buildings misclassified as 3 story buildings - that means the actual price per square foot for shells is now in the mid-$140s.

Last year I thought the comp for it was it’s sister townhouse around the corner - 883 St. Nicholas Ave which sold in July ‘09 for $1.04M. Thing was, 883 was recently renovated and in better condition, so we figured 413 would go for less than that - probably under $1M.

Aging bathroom needs renovation

413 West 154 had had a day care center in the ground floor which was an English basement, so not completely livable space. The English basement was a bit of an issue for us since Dan wouldn’t have had a cellar to use for an art studio and we didn’t really have the option of a rental apartment on the ground floor unless it was a studio apartment. Despite being it being 21 feet wide, the rooms weren’t that wide because there was a structural wall running the length of the building. The top floor was a one bedroom “mother-in-law’s apartment” - so not legally rentable, but still an independent unit with it’s own kitchen, etc.

The other negatives were that it was a 1/2 block from a large housing project, and while it’s literally “around the corner” from the subway it’s just the C train - and it’s a long walk to express trains.

What 413 West 154 had going for it was that it was incredibly solidly built and completely livable. It looked like it had been renovated in the 80s and everything seemed like it was in working order, though the renovations were looking dated and needed a lot of updating. We knew if we moved into it that we’d want to spend $200-250K on bathroom and kitchen renovations. We never bid on it - there was just too big of a discrepancy between what they were asking and what it was worth to us and the layout didn’t really meet our needs.

Here are some pictures to give you an idea what it was like…

Basement level looking out to garden (previously the day care center)

Living room with spiral staircase up to master bedroom

Back yard with basketball hoop

Back wall showing building was in great condition

So, if you’re in the market for a townhouse, realize prices are starting to go back up. You’ll need to bid higher than you would have a 6 months to a year ago. That’s good news if you’re trying to sell or if you just bought. We’re not talking a huge jump in prices, but enough to be noticeable.

To me that’s pretty remarkable… Same previous owner, same neighborhood, same square footage, yet they paid 41.5% more for their place than we paid for ours.

But the reason is pretty simple - width… 18 feet is the width when developers start getting interested in a townhouse. Building code requires a 3′ wide staircase and 3′ hallways. You’ll need one public hallway for the staircase and then another inside the apartment. Even if you do exposed brick, you’ll have at least 8″ of wall, so you need 9′ 8″ just for the required parts. In our building that leaves less than 4 feet for a bathroom, which isn’t enough. On a standard 18 footer that has about about 17 feet brick to brick you have over 7 feet of room for the bathroom, closets, etc. - which is plenty…

That means if you’re looking for a bargain on a Harlem townhouse shell and you just want it to be 2 or 3 family, then you should go narrow… You’ll get a better price on a 15 or 16 footer than you will on an 18+ footer, ’cause you won’t be competing with developers.

UPDATE: One thing I forgot to mention is that once a narrow townhouse is renovated it can sell for good money as is evidenced by the recent comp over on 119. So this really does seem to be a supply vs. demand issue. There’s just more demand for wider shells than there is for narrower shells. You pay a premium at 18+ feet because you’re competing with developers.

During our search we went through the one 2 doors down - 7 West 119th Street. It was fully renovated with some high end finishes (Sub Zero fridge, but just “better than rental” cabinetry). It wound up selling for $1.0983M. It’s hard to figure out the square footage of #7. Officially it’s 2,794 sq. ft. so it officially sold for $393/sq. ft. However, the City has it’s length at 47′ when all it’s sibling neighbors are officially 38′. I don’t remember it being pushed out in the back and the permit they pulled said no enlargement was proposed. It’s on a lot with a diagonal back line - one side it’s 54′ deep, the other it’s 58′ deep. I remember the back yard basically being a small deck, but it the short side was definitely more than 7′ feet long. So I really think the square footage of #7 is smaller and more inline with it’s neighbors. On top of everything else they did a double height living room so it was probably under 2,000 of real square feet. If it were 2,000 sq. ft. then the price per square foot would have been $549/sq. ft. which is way over what the other comps support. By comparison the incredible one on Strivers’ Row went for $505/sq. ft.

11 West 119th is a SMALL townhouse that shouldn’t be made into more than a single family home (#7 was made into a 2 family with a tiny studio apartment and I think it was a mistake). It’s not not in a historic district (though it is literally adjacent to a one). It’s steps from East Harlem where values are somewhat lower. It’s across the street from (relatively nice) public housing. So I’m not seeing how the property commanded $188/sq. ft. But with both #7 and #11 selling way over what the comps support — apparently they’re smoking really good over at that end of West 119th Street! 

No matter - this is a great comp for those of us who own townhouses. Be happy! And for the new owners of #7 and #11 West 119th Street - the values will go up in the coming years and they’ll still make money when they sell.

But honestly - if you’re looking to buy a Harlem townhouse shell - get a damn good real estate broker and a subscription to Property Shark that includes comps and really get to know what things are actually selling for (as opposed to what they’re listed for). A Property Shark membership is WAY cheaper than overpaying for real estate.

There are two big things the building has going for it. First, location - it’s practically in the heart of all the redevelopment and buzz that’s happening in South Harlem. Walk across St. Nicholas Avenue and you’re in the middle of everything that’s hot and trendy in Harlem - Nectar wine bar, Moca Lounge, etc. And it’s also close to the A,B,C and D trains at 125 - so it’s just 1 stop from 59th Street.

The second thing the building has going for it are its development possibilities. You can (and probably should) invest a $1 million in this building, and when you’re done it’ll be worth more than you put into it (if you’re smart about how you spend the money). Because most of the lot is within 100 feet of St. Nicholas Ave, it has a FAR just under 6 (which means you can expand the building far bigger than you can other townhouses that have a 3.44 FAR), and it’s got a C1-4 commercial overlay, so you can have the option of a commercial tenant on the ground floor (but it has to be one that services the immediate neighborhood).

It’s currently a 4 story building. If I were buying the building I’d push the back wall back to maximize square footage and add two partial floors on top. I’d configure it with three units. Because the building is only 17 feet wide you don’t really want to make it more than 3 family. The basement would be one unit with the possibility of a commercial tenant. The parlor floor could be a two bedroom apartment, and the top two existing floors plus the two floors I’d add would be a large quadraplex. You could step back each of the additional floors and allow for outdoor terraces making the quadraplex an incredible space with tremendous outdoor space…

In the picture above you can see that there is an alley along the west side of the building. There are a number of existing windows in that wall. The rules about lot line windows apply, but it’s a great to have windows in your bathrooms and a wall you can exhaust vents out of.

As you can see the façade and the stoop need a lot of work. But as you move inside the original floors and a some original details are still intact…

(click on any image to see a bigger version of it)

I have to say going through the building was a bit unsettling. There were clothes and sleeping bags left over from when homeless used to live in the building. The staircase was a bit rickety, and there was a dead cat in the basement. But all of those things are easy to fix.

While you can buy this building and not expand it beyond it’s current 3,400 sq. ft. it’s best if you plan on making the building substantially larger. The construction will be pretty expensive given that you’ll want to add two floors and push the rear wall back, and you may need to reinforce the foundation to support the additional floors and you might want to lower the floor in the cellar - none of which comes cheap. But given the area, you can spend the money and have it come back to you.

In terms of price it’s currently at $795K. Townhouses typically sell for around $200K off their asking prices, so I’d guess it’ll sell for around $600K, maybe a bit higher. $600K would be $176/sq. ft. which is high for a shell, but the location and development possibilities explain why it’s at the high end for a shell. Even if you spent $200/sq. ft. renovating it (no expansion) you’d still be under $400/sq. ft. which is supported by the comps. If you want to expand the building I think you’ll find that cost effective as well.

I should also say something about the tax situation. The taxes are quite high - $9,664/year. Most townhouses pay about 1/3rd that amount. The current owner sorta messed up. He should have pulled a permit to convert it to 2-3 family, started construction, and gotten Department of Finance to reclassify the building and bring the taxes down. This is actually a good example of what I was talking about in the previous post - you don’t want to convert this building to 4 (+) family because the taxes will remain high and the additional rental income may not cover the higher taxes. 2 or 3 family makes a lot more sense in this case. If you can get it reclassified as 2 or 3 family, then the assessed value will drop to $10,200 (6% of the market value of $170K), which is far lower than the current transitional assessed value of $72,990. The taxes on $10,200 would be $1,745 - nearly $8K less than what’s being paid now. DOF will up the market value because you’re doing work on the building, but you’ll still pay substantially less than what’s being paid now.

It’s probably worth mentioning that we bid $575K on it back in November 2009 and it was rejected - we were told we weren’t even close. I would have gone up to $600K and possibly a bit higher if we had access to the money, but the ‘no’ was so resounding we never went back with another bid. It wouldn’t surprise me if the owner currently feels a bit firm at $795K, so it could take some negotiation to get the price you want…

Whether you get this building or another I recommend you have a real estate broker who’s an aggressive negotiator. Norman Horowitz (the listing agent) is a good guy, but I wouldn’t go to him directly since you will be wanting to negotiate a significant amount off the asking price. If you’re looking for a tough negotiator who really works for her clients, we recommend Maria McCallister of Barak Realty - she’s proven herself to us in both the sale of our apartment and the purchase of our townhouse.

Uptown vs. Downtown

One thing we’re noticing is that a lot of the good contractors usually work on projects downtown that have big budgets. One construction manager two days ago kept throwing out the number $2 million when he was discussing a budget. That’s nearly 4 times our budget and the fact that he kept using that number over and over and over again to us meant he just wasn’t right - he’d probably never understand our budgetary constraints.

Then there was another contractor who seemed to have rich clients that kept changing their minds. To him the design was fluid and he expected it would change substantially while it was being built. In contrast, we know we have to get it nailed down as much as possible before contractors give their final bids so there are as few change orders as possible. I’m sure he’s great with rich clients who really don’t have budgetary limits and want their every whim to be indulged, but we do have budgetary limits and we need the contractor who understands that.

One of contractors who’s made it onto our short list was a guy who came in with his partner who does structural work. One of the first things they asked was how much we paid for the building and how much we thought it would be worth when we were done. They then threw out a number that was close to our budget and understood that we needed to come in near that number.

Large Projects vs. Small Projects vs. Townhouse Guts

The other day we had a contractor in who we had wished we had gone with for our apartment renovations (he was too expensive). He does incredible work. He came into our townhouse and was clearly overwhelmed. He told us he could only bid on the project once we had floors in place so he could get a sense of the scope of work. The structural work completely freaked him out. We explained it was being funded with a rehab loan and it was an all-or-nothing package deal.

Then there are the guys who only work on huge projects. The mechanical engineer our architect had us sit down with just didn’t understand (initially) that you don’t need the same level of heating and cooling systems in a townhouse as you would a commercial space with the same square footage. It took him a while to think small. The same goes for some of the contractors who work on larger buildings and are used to huge HVAC (Heating, Ventilation and Air Conditioning) systems. They just think big and big comes with big price tags.

Another guy came in and he seemed like a good guy who would do a great job. But he was used to doing commercial work where everything is spec’d out in incredible detail by the time he gets called in. He said he wanted absolutely everything spec’d before he gave a proposal - the HVAC system, structural, the windows, the doors - everything. In contrast our goal in bringing the contractors in early was to understand the ways they would do things to stay on budget. We didn’t want to spec a system that could be done more cheaply. I felt a little sorry for him ’cause it was clear he was used to working on buildings that were much larger than ours but he said at the moment he’s just doing a few little jobs and that our project was substantial enough that would keep him going for a number of months. I mentioned that other contractors were giving us estimated budgets with allowances for materials that hadn’t yet been spec’d. A light bulb went off in his head and he said “Oh, I could do that”, but then he never did get back to us with a proposal.

NYC vs non-NYC, Harlem vs. Other Neighborhoods

Then we’ve had some contractors who’ve come in from places like Long Island who seemed freaked out by the City. One was shocked that he got a ticket one time when he left his car for 5 minutes while he was giving out pay checks. Experienced NYC contractors have guys watching or sitting in their cars while they’re at the job. The ones outside New York also don’t seem to know how to deal with NYC Department of Buildings. They complain about how long it takes to get approvals and inspections. The experienced NYC contractors talk about their expediters, and how they’ve done enough work in particular neighborhoods (Harlem) to get to know the inspectors and the types of things they look for.

Then there are others who just won’t work in Harlem because there tend to be theft problems in Harlem (e.g. tens of thousands of dollars worth of copper piping getting stolen). Compare that to a contractor who does a lot in Harlem who said “Yeah - I just put in a temporary alarm system - when there’s a break in, the police are called and my partner and I are called.” He knew how to deal with the neighborhood - it was no big deal to him.

Developer vs. Homeowner vs. Flippers

Yesterday we had a contractor come by. He and his partner were great guys who were extremely nice to deal with. They flat out asked our budget, we told them and they said “Wow - that’s exactly the number we were thinking when we did rough cost per square foot numbers yesterday”. HOWEVER, when I looked into the projects he’s worked on there were a lot of large apartment buildings (50+ units), and the townhouses were all chopped up into floor-through rentals. Property Shark had interior photos for some of the brownstones he’d worked on and they all showed low-end “builder’s grade” materials.

When we did the renovations of our bathrooms and kitchens in our old apartment we went with a guy who mostly worked for people who were flipping apartments. We learned that was a bad idea. People who flip come out with places that look great, but they don’t care about long term quality. The foreman he assigned blew up at me when I told him green board couldn’t be used in showers. I pulled the product spec sheet and showed him that it specifically said it couldn’t be used there and his response was “I’ve used it in million dollar homes” as if that mattered.

Simply put, homeowners want different things than people who are developing for renters or to flip. A developer/landlord wants something that’s cheap and functional. A flipper wants something that looks good and doesn’t care how long it holds up. A homeowner wants something that looks good and will stay looking good for a long time. Each of those types of customers need a different type of construction and hence a different type of contractor.

Contractors Who Finish vs. Those Who Don’t

Another criteria we’re starting to look at is whether the projects the contractor works on ever get their Certificates of Occupancy. A remarkable number of townhouse projects never actually get a new C of O. They may get a couple temporary ones, but then just never finish off the final details to get the final C of O. Since you need a C of O to legally rent an apartment it’s something we’re looking at pretty closely.

General Contractors (GCs) vs. Construction Managers (CMs)

Going into this we knew what a GC (General Contractor) was, but had never heard of a CM (Construction Manager). One CM came by to do a pitch and in the process they explained how they’re different than a GC. What it boils down to is that a GC hires all of the sub-contractors and is responsible for them. You pay a GC and he pays the subs. If you have a problem you have it with the GC. A construction manager is a consultant who takes a percentage as a fee. They’re not responsible for the sub-contractors instead they try to help the owner choose and manage the subs.

While I think a construction manager is a perfect solution for a busy executive who has more money than time, in our situation we want one person who’s responsible for the project. If the plumber is interfering with the work of the electrician we don’t really care - we want one and only one person who is ultimately responsible for making sure everything goes smoothly.

“Just Right”

So, after quite a few contractor interviews we’ve finally decided we want someone…

• Who has worked on a lot of townhouses
• Who has worked a number townhouses in Harlem
• Who can deliver significantly better than “builder’s grade” finishes
• Whose projects get C of Os when they’re done
• Who is comfortable with structural work without overdoing it
• Who knows how to do work on a tight budget

Luckily we do have a few options who seem to meet many of those criteria. We’re still vetting them - calling references, looking at previous projects, etc. The short list is taking shape and should be in place by the time we’ve got all the specs ready.

#1 - Realize Harlem Townhouses Are A Speculative Purchase

Harlem townhouses were built by speculators in the late 1800s and early 1900s in conjunction with the subways being extended north into Harlem. But then there was a real estate crash starting in 1904 and that speculation came to an end and rents dropped. Harlem townhouses started as speculative investments and 100 years later the cycle of speculation and failure is still going on as is evidenced by the fact that you can buy one for 1/3rd of it’s price 2-3 years ago.

You need to go into it knowing it’s a speculative purchase. While I firmly believe Harlem townhouses will fair far better in the next major downturn (10-20 years from now) there is no guarantee. Harlem is not Brownstone Brooklyn. It’s not “there” yet. It’s only starting to get things that people look for in “good” neighborhoods like great supermarkets and good schools.

There are certain implications to a speculative purchase. Namely you need to watch for the next real estate crash and either get out before it, or be prepared to weather it. If you go into it knowing that time will come, you won’t be so disappointed when it happens.

#2 - Be Very Careful Buying SROs

SROs are “single room occupancy” buildings where people have a room without a proper kitchen. I’ve been reading Sherlock Holmes lately and he lived in an SRO. At one time it was fashionable for single men to live in them - the landlord would serve them meals, etc. Then they just became the least expensive form of housing and the City’s poor gravitated to them. Today SRO tenants often earn $10,000 to $15,000 per year and typically pay 50% of their income to rent these cheapest of cheap rooms. The issue is that when you kick out an SRO tenant they often can’t find other housing and they become homeless.

As a result the City put a moratorium on converting SROs back in 1985 because there was a wave of landlords kicking out their poor tenants, converting to proper apartments and making a bunch of money. A year later they put in place a process whereby you can convert an SRO, but you have to prove that the tenants haven’t been harassed at any point in the past 3 years. To get the signatures required you often have to pay the tenants $10,000 or more, and then the City will take 6-9 months investigating your claim - making sure you didn’t omit anyone who lived in the building, etc. If they approve you, then you get a “certificate of no harassment” which enables you to get a building permit to do the conversion.

The bottom line is that you need to know whether the building you’re considering is an SRO, and if it is you should see a certificate of no harassment before going into contract. Even top brokers lie and tell half truths when they’re selling SROs that don’t have certificates of no harassment. So you need to know how to determine SRO status yourself. There are two primary sources - NYC Department of Buildings (DOB), and NYC Department of Housing Preservation and Development (HPD). HPD has a web site that tells you details about buildings. If the number of “B Units” is greater than zero, then it’s an SRO. Keep track of the Block and Lot numbers that HPD has and then head over to DOB’s BisWeb site. There you enter the block and lot numbers and you can see the information they have on the building. One of the pieces of information is whether the building is SRO restricted. Remember that if any City agency thinks the building is SRO restricted, then it’s SRO restricted, though DOB and HPD are the primary sources of information for SRO restrictions.

DO NOT BUY an SRO without a certificate of no harassment unless you really know what you’re doing.

There are a few cases where buying an SRO without a certificate of no harassment is OK…

First, is if you want to be an SRO landlord. It’s not easy, but it can be profitable. Fully occupied SROs go for $600-$800K. If you have a typical 4 story building with two units per floor, each giving you $650, then you’ve got a rent roll of $5,200. If you can get a mortgage that should more than cover the mortgage payments and expenses. HOWEVER, do watch the taxes - they can be really high on SROs and wipe out any profits. I saw one in East Harlem that paid $25K/year in taxes.

Second, it’s OK to buy an empty SRO if you’re OK with your renovations not being done for 5 years (3 years of waiting + 1 year of review + 1 year of construction). If you can get the current owner to provide a sworn statement that it’s been vacant that can reduce that time frame. You can live in it during that time but you’re only allowed to do “repairs and maintenance”. If you do anything to convert the building you can get fined for it and that violation can make it impossible for you to EVER convert the building. It can even make it difficult or impossible for the next owner to convert the building. In that case you may need to bring the building up to current code as an SRO first, clear the violation, and then reapply for the certificate. That means you pay for renovations twice.

#3 - Look For Realistic Sellers

There are a lot of townhouses on the market right now that are completely unrealistic about their price. Even the ones that have realistic owners typically price their places $200,000 higher than they know they’ll sell for. In our case it was listed for $795K and we purchased it for $530K. Pretty much the only ones that are realistic are estate sales. We got ours from TPE Townhouses Harlem (a part of Tahl Propp Equities). They bought 11 townhouses and didn’t develop them quickly enough and then needed to liquidate them when the market went south. So there are people other than estates who are realistic…

The only way to know if the seller is realistic is to put in a bid. We saw 30 places and put in bids on 7. In one case it was a realistic seller, but we pulled the bid after having second thoughts. In another case it was a short sale and they wanted all cash. The place on Astor Row was looking for people who were bidding based on their gut, not the numbers. In another case there was already an accepted bid and they went with that offer (we later learned that our offer was about $10K less). Given all the bids you’ll be putting in and how much you need the sellers to come down, it’s critical that you have a real estate broker who’s great at bidding aggressively. They need to pull out every trick in the book to get you the price you should pay. If you need a broker with excellent bidding skills, we’d highly recommend Maria McCallister of Barak Realty.

One assumption I made during our search was that eager sellers would list their properties with brokers who would market them aggressively. Right at the end I realized that wasn’t true. Back when the market was hot there were brokers who would get listings and then not market them because they didn’t want to share the commission. (Not every broker in NYC is part of REBNY, which requires co-broking.) Back when Harlem townhouses were so hot you couldn’t help but sell them, it wasn’t a bad strategy. But I had a friend who listed his place in 2008, before the crash, with one of those brokers. She got him into contract for $1.4M, but it fell through. Then the crash happened. A lot of time passed and she got him into contract again, but that one fell through as well. He finally sold the place earlier this year for $775K. By the end he was sorta desperate to sell and was bleeding financially. So those brokers do have motivated sellers and for one reason or another they manage to keep the listing. That particular broker was flat out lying to my friend. She told him she was advertising in the NY Times (she wasn’t). She said she listed his place in the REBNY systems, but our broker confirmed she wasn’t.

That means there is value scouring the web for small real estate companies that have some townhouse listings. Typically they don’t tell you the address or the price and are pretty obscure about other details as well. When you see the properties you need to do things differently. Start by seeing the place on your own and do not mention that you have a broker. Then bring your broker in later after you’ve started initial negotiations. When we wanted to see my friend’s place his broker pulled every trick in the book trying to not get us in before the contract with her buyer was signed. It was only when she realized I was standing there texting everything she did to my friend that she sorta stopped playing tricks.

#4 - The Block & Immediate Neighborhood Can Make A Huge Difference

Real estate values in Harlem vary widely from block to block. We didn’t understand why one townhouse down on 112th was asking so much until very late in the process when we realized how nice it was over in South Harlem (SoHa). Anything close to that goes for a premium. Up in Hamilton Heights you cross Amsterdam Ave and you can go from one of the best blocks anywhere in Harlem to blocks that are pretty sketchy. If you don’t already know Harlem, it can take some time to be able to discern the good areas from the bad.

Before you go into contract on a place go there at night when it’s nice weather and people are out on the street. It’s best to do it a few times to really get a feel for the place. Ask yourself whether you feel safe. If there’s loud music ask yourself how you’ll feel about that when you’re having guests over for a barbecue. Look for possible drug dealing. New York doesn’t really have a gang problem, but look for “rough” groups of kids who might hassle you. But don’t be too critical on that last point. We were going by one property and saw a group of kids outside a building. About 5 minutes as more and more of them arrived and they subsequently left we realized it was Friday night and they were just meeting up to go out clubbing. If they’re standing around laughing an joking chances are they won’t be a problem.

#5 - Get A Property Shark Membership With Comps

One of the best things you can do is get a membership to PropertyShark.com. You can get an incredible amount of information about each of the buildings. You can see tax information, ownership history, pictures, building permits, violations, lis pendens (pre-forclosures), etc.

One of the great things they have is comps search. Not sure what something is worth? Do a 1/4 mile radius search around the building for the past 6 months and you can see what comparable properties are actually selling for (not just their list prices). One trick is to search for all building types but limit the search by square footage. 6,000 or 6,500 square feet max should find the townhouses you’re looking for.

#6 - Realize It’s Usually All About $$/sq. ft.

It’s uncanny how townhouse sales are consistent in terms of price per square foot. HOWEVER, it’s not as easy as you think to calculate the cost per square foot because the DOB has used two different methods to calculate square footage over the years.

First a little terminology… A townhouse “basement” is the floor that’s partly below street level. It’s the “garden apartment” in many cases. Below that level is the “cellar”. Floors that are completely below grade are not included in the square footage of the building (and cannot be used for sleeping). The confusion has come with the basement level which is partly below grade.

When the buildings were first built the basement was used for the kitchen and a bedroom for the cook/maid. Since it wasn’t where the family lived it wasn’t included in the square footage of the building. But we use townhouses differently now and the basement is considered living space, so it is now included. Problem is, the  DOB never went back and recalculated the square footages of buildings calculated the old way. That throws off the calculations of cost per square foot.

The important thing is to be consistent and compare apples to apples. How the square footage is calculated can make a big difference. Let’s say a building has 1,000 sq. ft. per floor and 4 stories including the basement. That means it’s either 3,000  or 4,000 sq. ft. Now, if it sold for $1M then the cost per square foot was either $333 or $250 - a HUGE difference. So you have to be consistent one way or the other. On Property Shark you can see the building’s dimensions and whether it has an extension on the back. If there isn’t an extension then it’s easy to calculate. However sometimes the extension is included in the length of the building and sometimes it isn’t. So there are times when you just can’t tell. If you see a C of O in the past 10 years or so, then you can trust the official square footage of the building and know that it includes the basement.

One other thing to remember is that, unlike apartments, townhouse square footage includes the exterior walls. A considerable amount of the square footage can be walls. For example our place has an exterior dimension of 15′ x 58′ or 870 sq. ft. per floor. The brick walls are about 1′ thick. We share one wall with the townhouse next to us, so brick to brick our square footage is 13.5′ x 56′ or 756 sq. ft. If we did 4 inch studs on all exterior walls that would reduce things further to 12.8′ x 55.3′ or 708 sq. ft. That’s a huge difference from 870 sq. ft - nearly 20% of our square footage is exterior walls.

As you get to know the market you’ll understand the value of buildings and a quick calculation can give you an approximate price. “Why are you asking $400/sq. ft. for a building in poor condition?” can be a fun thing to ask the listing broker…

And one side note - since it is all about price per square foot - if you’re tempted to put in double height ceilings when you do your renovations remember that you’ll be reducing your square footage and devaluing your property.

#7 - Know How Much Renovation Costs

Most of the townhouses in Harlem have 100 year old plumbing and nearly as old electrical systems. Very few of them are properly insulated. Most have rotten floor joists under the bathrooms. That means they all need major work. Never assume otherwise. And replacing things like plumbing, electrical and insulation in an old building requires skilled workers who are able to do their work surgically. Assume plumbing and electric will cost you $150K. If you buy a total shell like ours you’ll be spending at least $150K, probably $200K, just on new structural components. Windows can run you $1K/window for good windows (Harlem townhouses have some HUGE windows - we have one that’s 4 1/2′ x 7 1/2′ and others that are 3 1/2′ x 9′ - the place on Astor Row has a window that’s 5′ x 7′ and on a landmarked exterior where you’re required to use relatively expensive windows).

Then there’s the new building code… In 2008 the City implemented a new building code. The prior building code was from 1968. They didn’t change that much but what they did change can be expensive. For starters more buildings need sprinkler systems - that will run you at least $50K since sprinkler systems have to be done with cast iron pipes that won’t melt in a fire. You’ll also need at least one “handicap adaptable” bathroom per unit. If you’re thinking about an elevator, the minimum size just got a lot bigger. If you’re trying to change your C of O (e.g. converting an SRO) you have to bring it up to code - so all of that may be necessary…

In general, townhouses that look like they’re in pretty good shape will probably need at least $250K in renovation just for new electrical, plumbing, bathrooms and kitchens (though you may be able to defer that cost for a few years). For bigger projects you need to budget $150-200/sq. ft. for a pretty basic job. High end finishes will run you even more. That means a townhouse in poor condition with 4,000 sq. ft. can easily have a renovation that costs $800K. You can do it for less, but you really have to work hard to find a reputable contractor who can do things inexpensively and then you have to scrutinize every line item on the budget and spend countless hours learning about the options for every major system in the building.

And don’t forget all the little costs - the architect will want about 10% of the construction cost. Then you’ll need to budget money to carry the renovation loan during construction. Just those two can easily be $100,000 or more.

Before you bid on a place, conservatively estimate the future value after renovations and then deduct over-estimated renovation costs. The purchase price + renovations should be less than the future value. If it’s not, lower your bid.

Good luck!

Roof Insulation - The inspector kept telling him the roof insulation fine, they’d close up the ceiling, and then be told it wasn’t OK at which point they had to tear all the sheetrock off the ceiling and fix the problem. How “green” is it to waste that much sheetrock?

Plywood - “Green” plywood costs 3 times more than regular plywood. Isn’t all plywood made of recycled/waste material? I don’t get it…

Green Paint - …is just bad paint. It doesn’t adhere very well and the color doesn’t match properly so you can’t just touch up a problem - you have to repaint the entire wall. How is that “green”?

Dumpster Recycling - Putting the waste material through recycling instead of just sending it to a landfill costs about 40-50% more. That one I sorta understand, though I wouldn’t want to pay for it.

It just seems to me like a lot of LEED certification is just trying to make money on an already expensive product.

There are parts of green architecture that make sense to me - the ones that save you money. Good insulation, energy efficient heating and cooling… But charging 3 times as much for plywood is just crazy.

We’re going to stick to just being energy efficient and leave all the stuff with needlessly inflated prices to the people who seem to have way more money than we do…

Well, if you bought at those prices I think you bought at the bottom of the market. Things are much better now. The number of sales over $1M has doubled to 10 for the past 6 months and at least one of the properties is back over $500/sq. ft.

And here they are…

• 262 W 139 St (Strivers’ Row) - $1.85M, 3,660 sq. ft., $505/sq. ft., two family with an owner’s triplex over a ground floor rental - This place is ABSOLUTELY IMMACULATE. It was an over the top renovation planned back when you couldn’t help but make money flipping townhouses in Harlem. Things didn’t go very well for the developer/seller, but the new owner has a stunning place to live (with a garage!)
• 14 W 120 St (Mt. Morris) - $1.385M, $3,37 sq. ft., $456/sq. ft. - 18′ 4 story brick townhouse literally across the street from Marcus Garvey Park. SRO restricted. HPD says it has one class A apartment and 9 class B rooms. For some reason DOB has it classified as 4 family, but is aware it’s SRO restricted.
• 116 W 120 St - $1.485M, 3,636 sq. ft., $408/sq. ft. - 20′ 4 story painted limestone townhouse. Surprisingly this is an SRO restricted old law tenement. HPD says there is one class A apartment and 6 class be “rooms”. DOB still classifies it as an old law tenement, but doesn’t realize it’s SRO restricted.
• 7 W 119 St (just outside the Mt. Morris Historic District) - $1.098M, 2,794 sq. ft., $393/sq. ft. - This was a shell and was recently gut renovated with an uneven mix of high end and low end finishes. We went through it. The building is one of the smallest townhouses you’ll see - 14′ x 47′. The rooms in it are TINY and the “back yard” is just a small deck. Our couch wouldn’t come close to fitting in the living room. It’s a technically a 2 family since there’s a VERY small studio apartment in the front half of the ground floor. I have no clue how they’ll rent such a small space. It should have been made into a single family. In my opinion the buyer over paid, but that’s a good sign as far as the market goes.
• 106 W 118 St - $1.275M, 3,400 sq. ft., $375/sq. ft. - 17′ x 49′ 4 story brownstone. It’s a legal 3 family, that was converted about 10 years ago.
• 15 W 122 St (Mt. Morris) - $1.375, 4,180 sq. ft., $328/sq. ft. - 18′ x 53′ 4 story brownstone. This is technically an SRO. HPD shows it having one class A apartment and 8 class B rooms. However, DOB shows it has being an SRO-restricted 2 family.
• 590 W 152 St - $1.2M, 3,744 sq. ft., $320/sq. ft. - 16′ x 52′ 4 story limestone townhouse with a C1 commercial overlay on it’s zoning. Like the last one, HPD shows it having one class A apartment and 8 class B rooms. However, DOB shows it has being an SRO-restricted 2 family.
• 76 Edgecombe Ave - $1.436M, 4,611 sq. ft., $311/sq. ft. - This is a lovely 19′ brick townhouse on a corner lot. There would be incredible light in the building since the long wall faces south (too much for my tastes, but I know others like southern exposures). It’s a completely legal 4 family with no SRO restrictions.
• 226 Lenox Ave (Mt. Morris) - $1.25M, 4,932 sq. ft., $253/sq. ft. - A very grand 20′ brick townhouse that was a former funeral parlor. Curiously this is technically a rooming house with no apparent SRO restrictions - somehow with the funeral parlor in there they avoided SRO status. In addition to the funeral parlor there are 2 class A apartments.
• 146 W 136 St - $1.1M, 4,590 sq. ft., $239/sq. ft. - 17′ x 56′ 4 story townhouse. It shows as 3 family, but DOB is still showing it as SRO-restricted (probably an error). The new C of O was just issued a year ago, so this is newly renovated. This was an incredible deal. The weird part is I can’t find any record of it having been for sale, so there has to be more to this than you can see at first glance.

So there you have it - the top sales for the past 6 months for Harlem townhouses. Considering that just about every week a townhouse will sell in Brooklyn for over $2M, that’s sorta a sad lot by comparison, but at least things are better than they were a few months ago.

Where things are selling…

It’s also interesting to note that none of the sales were in Hamilton Heights / Sugar Hill. 6 of the 10 were south of 125th in and around the Mt. Morris Historic District. Given that our place is in the same area the good news is that we’ll have no problem with the future value appraisal for our rehab loan. It would seem our place will be worth about $400/sq. ft. when it’s completed.

Prices on shells will go up too…

That brings up another point… The sum total of all of these numbers is that when the top end of the market goes up, everyone goes up.  Let’s take our case. When we were bidding I was thinking our place would be worth maybe $325-350/sq. ft. when it was done. So if we put $150-200/sq. ft. into it I had to subtract that from the finished value for things to make sense. We bought at $122/sq. ft. so we’d be safe no matter how you looked at it (provided the market didn’t continue to go down). Now that the top number is $400/sq. ft. things are significantly better.

I still think the biggest risk are the ones in the middle that need more work than you might think. It’s still easy to over pay for those properties. The best bets are shells and ones that are recently renovated.

Buy now! Buy low!

Unless there’s more economic turbulence, I’m firmly convinced now is the time to buy a Harlem townhouse. The trick is finding one in a decent area, without SRO issues, where they’ll sell low.

Here’s one picture looking back to front in the cellar…

And we climbed up a ladder, through some rickety floor joists and into the back yard for the first time. It was pretty much what we could see from 122nd Street though we saw the bottom floor for the first time. I can’t believe some moron cut a huge hole in the brick wall to put an air conditioner in. There isn’t even a steel lintel to hold up the weight of the brick above. Needless to say that’s gotta be patched. And there’s about 1 foot of construction debris all over the back yard which will need to be removed. Unfortunately masonry debris tends to be basic and plants like acidic soil, so once that’s out and cleaned up we’ll need to bring in a lot of fresh topsoil and wood chips to get the soil back to being acidic. There was very nice light in the back yard - quite sunny…

The yard felt a little narrower than I was hoping for, but I’m still going to be very happy to have a back yard. Just need a good privacy fence… I haven’t been able to really garden in over 20 years… Should be fun!

One thing that doesn’t look so glamorous now but will be glamorous in the future is the size of the windows. Just on the ground floor (in the future basement rental unit) that window is nearly 7 feet tall. One floor up, on the parlor floor (in our future living room) those are 8 foot windows (One will become a door). And one more level up on the master/mistress level, in what will be our master bedroom, there are 7 1/2 foot high windows. That’s the south wall, so we’re going to have a crazy amount of light… Possibly too much light.

When we were looking at it it was priced at $679K. Last month it finally sold for $425K. When we were bidding on it we went as high as $430K and they came down to $450K but then we withdrew our bid completely after spending an evening walking around the street. Even though it was just across Amsterdam Avenue from one of the best blocks in Harlem it was a remarkably rough block. The time we walked the block at night while we were bidding, it was summer, the windows were open and the salsa and merengue music was blaring from the windows. We realized that while the house itself had potential, the block didn’t have that much potential. It was never going to be a “good” block - at least not in the next 15 or 20 years. That would always limit the price of this townhouse, so we stopped budding on it. A few months later we second guessed our decision not to proceed on it so we walked the block again. This time as Dan was walking down one side of the street and I was walking down the other side, two “low income” women were yelling at each other and just about got into a fist fight as Dan passed them. He didn’t feel safe and that was absolutely the end of our thinking about 505 W 144.

On the plus side, the apartment building on the other side of the street and down a bit is where George Gershwin lived for a number of years, and there are 3 or 4 large apartment buildings on the block that have been designated part of an economic development zone and are getting 10-20 years of no real estate taxes in exchange for being redeveloped. One rooming house on the block has been gutted and turned into a condo and one building has been turned over to it’s tenants and is now a co-op. So the block is improving, but it’s still far from what we were looking for.

Here are the details…

Sale Price: $425,000
Sale Date: 5 February 2010
Square Feet: 3,468
Price Per Sq Ft: $122
Dimensions: 16.5 x 52 (no extensions)
DOB Classification: 2 family
HPD Classification: 1 class A apartment + 9 class B rooms
SRO Restricted: YES with certificate of no harassment
DOF Market Value: $1.13M
Annual taxes (2010): $3,039

It’s interesting that we paid the identical price per square foot for our place that the buyer paid for 505 W 144th - $122/sq. ft. but we feel like we made the right choice buying our place over this one.

The question then is if someone purchased this building what’s the best usage? Given the block I’d say it should be a 3 family rental with unremarkable finishes. You’d want three family instead of 4 to keep the taxes low. The ground floor would be a floor through 1 bedroom garden apartment. The parlor floor would be a large studio apartment. On the parlor floor the staircase is a switchback in the center of the building. That limits the layout options, hence a studio apartment on that floor. However, there are some interesting original details that could be preserved. Then the top two floors would be a nice, large 2(+) bedroom unit. There are original details on the master/mistress level, but not much of any on the top floor.

Given the block, I don’t see an owner living in this townhouse. IMHO, it’s value is purely as a rather average rental property.

Rough numbers… I’d conservatively say $1500 for the garden rental, $1,000 for the parlor studio and $2,000 for the top two floors. So $4,500/mo in income or $54K/yr. Assuming $1K/mo goes to running the building ($taxes, utilities, etc.), you could support a mortgage of about $600K off the rental income. At 80% financing that means the max value after renovations is about $750K and they have about $325K for renovations.

Renovations are a bit challenging because the house absolutely reeks of piss and shit. A “caretaker” had lived there for a number of years and during that time he didn’t walk his dog very much and the dog just did it’s business in the house. That means all the wood floors have to be torn out, the floor in the basement chopped up, removed and repoured, and Urine Off used liberally throughout the house. There’s also a fair amount of mold on the top floor - so all the “new” sheetrock walls on that floor need to be torn out and replaced. The plaster walls on the other levels are mold-proof, so they’d be OK. The building also needs all new electrical, plumbing as well as completely new kitchens and baths. It’s pushing it to get all of that done for $325K and bring it all up to code to get the new C of O, which means it’s not going to be very high quality.

There are some interesting original details. The triple mirror just inside the front door was incredible. It could be a great place, but I doubt it ever will be…

The one funny story from seeing this house was when the seller’s broker (Jean Adams of Prudential Douglas Elliman) was going down the dark, filthy staircase between the parlor and basement levels. She was a woman who carried herself with a fair amount of dignity but she was wearing flats walking down a staircase that was covered in rat droppings and god knows what else. She very calmly said “Wait a moment, I’ve got something in my shoe”. She didn’t have socks or stockings on, so that meant she had gotten what was probably rat feces in her shoe against her bare skin. Given what she had to endure to show that house, I had huge respect for her. Of course, she could have dressed differently… I for one always wore boots with steel soles and toes when I went through houses like that…

Pay 1/3rd of what you would have paid 2-3 years ago

Harlem townhouses that are wrecks and need major gut renovations have fallen about 65-70% in value since the peak in 2007. Even the ones in better condition have fallen substantially. Other real estate in Manhattan has fallen maybe 20%. I once had a friend tell me life is a lot like surfing - you need to watch waves and be prepared to get onto your next big wave and you need to do it before the wave gets too big. That analogy felt really apt as we sold our apartment at 15% off it’s peak value to purchase something that had fallen at least 65% from it’s peak value. It really felt like getting off one wave onto another that’s potentially much bigger.

Be prepared for volatility

But using the wave analogy a bit more… the Harlem townhouse market is still a market with drastic extremes. The fact that you can lose 2/3rds of the value in your home in 2 years will scare some people. There are a number of reasons for the volatility. The bottom line is that Harlem’s gentrification in the past 10+ years didn’t “stick”. Not enough got gone before the crash. The schools aren’t that great, the grocery stores are generally pretty bad, and there are still a fair number of empty lots and derelict buildings.

That’s why investing in Harlem today needs to be part of a long-term strategy. If you’re hoping to sell in a year or two - don’t do it. Harlem real estate could very well continue to go down in the next few years. Instead, look 10 or 15 years out at the next wave of investment/development and ask yourself which NY neighborhoods have the most upside potential. In Manhattan, Harlem is probably top of the list.

Signs of change - even now

If you’re not all that familiar with Harlem and it’s been years since you’ve been to Harlem try taking the ABCD trains to 125th Street and walking south on Frederick Douglass Boulevard (8th Avenue - the continuation of Central Park West). Years ago the place was pretty blighted, now the developers are calling it “SoHa” (South Harlem). Where once there was blight, now there are tons of brand spanking new buildings. Look closely at the buildings and you’ll see they’re quality building with decent design and above average construction. They’re a lot more like the new buildings you’d find on the Upper West Side than they are the drab new buildings you see in Washington Heights. At 124th you’ll see the new luxury Aloft Hotel being constructed. Around 120th go into Moca Lounge in the evening and see all the hip buppies. Around 119th go into Best Yet Market and see a grocery store that rivals downtown stores like Whole Foods and Gourmet Garage (it just opened a month ago and only had it’s official grand opening yesterday). There are great places to eat  all along that stretch - like Melba’s at 114th Street.  Yes, prices are down, but those new condos are still selling - even in this market. I genuinely think that type of development will spread to other parts of Harlem in the next upswing. If you’re patient enough to wait you can reap the benefits by buying now - at or near the bottom of the market (knock wood).

Pockets of long-time quality

There are certain parts of Harlem that have always had great townhouses and those neighborhoods are offering quality at a great price. Hamilton Heights / Sugar Hill (near the ABCD train at 145th) is one solid area. Strivers’ Row (138/139 between ACP and FDB) is another classic area that’s always been good. Mount Morris Historic District just south of 125 between 5th Avenue and ACP (6th Ave) is another solid neighborhood. And the blocks over by Morningside Park near Manhattan Avenue are great as well. Buying in an area with a reputation for stability is a pretty safe bet (long term). However, you really need to study Harlem to understand which blocks are solid and which aren’t since in some cases crossing an avenue can take you from one of the best blocks in Harlem to one of the worst.

Is the market going up or down?

Personally I think it’s leveled off. I don’t feel like it’s gone up or down much since about the middle of last year. Last July there were two sales in Sugar Hill that I saw as benchmark sales - 419 West 146th Street for $495K and 400 West 145th Street for $550K. When you looked at actual square footage both were at about $147/sq. ft. Both are in the historic district - with the one on 146 having the negative of a 12.5′ width, and the one on 145 having the negative of being on a busy street.

[The Department of Buildings has used two different ways to measure square footage over the years. As a result basement / garden levels are sometimes included and sometimes not. You need to determine the real square footage to determine the real cost per square foot.]

Doing the a 1/2 mile radius around those sales for the past 3 months we see prices haven’t changed all that much. The least expensive was 505 W 144 which sold for $122/sq ft. That’s one we bid on at one point and it’s outside the historic district on a “less than desirable” block. 400 W 145 sold for a 2nd time later in the year - this time for $650K - $100K more than it sold at auction for in July. 48 Hamilton PLACE sold for $450K ($143/sq. ft.) but it doesn’t have great location and I think it’s a fully occupied SRO. So, if anything I’d say prices have gone up slightly.

The higher end of the market is seeing similar stability. For almost a year now $300/sq. ft. will get you a habitable townhouse on a prime block needing significant renovation. In  the $400s/sq. ft. you’ll get a very nice fully renovated townhouse. And the exceptional townhouses will go for around the $500/sq. ft. mark.

Starting with a shell/wreck in a “decent” location (like ours), add about $20/sq. ft. for a prime block in a historic district or even a bit more the area in SoHa around Morningside Park & Manhattan Avenue. Or subtract about $20/sq. ft. for the worst locations. So the range for shells is just over $100/sq. ft. to about $150/sq. ft. on a prime block. It’s been that way for at least the better part of a year.

[If the townhouse is close to the FDB corridor and has the new R8 zoning with a commercial overlay, then it's worth significantly more given the development potential. 243 West 120 is a building that falls in that category.]

That said, in our experience very few owners price their townhouses anywhere close to where they’ll sell. Chances are you’ll get around $200K off the asking price. We got $270K off what the asking was at the time we started bidding (they lowered it $100K while we were bidding to attract other offers). Any owner who scoffs at an offer $250-300K below their asking probably won’t be selling their place any time soon.

How much do the renovations cost?

When looking at places don’t underestimate how much work has to be done. Even places that look half way decent can require $200-250K in renovations. In addition to the little stuff, most of the townhouses have original(ish) plumbing and electrical ($150K or so to replace). Most of them will have rotted floor joists near the bathrooms. Most of them will need all new kitchens and bathrooms ($200K to replace). Then there are things like repointing brick, replacing old, inefficient boilers, etc.

For an “average” wreck you’re probably looking at $500K in renovations. Our place is a complete shell with nothing left inside. We’ve budgeted $700K ($550K for construction + 10% overage contingency + $50K for architectural + $50K to cover the mortgage during construction) and that’s a very tight budget - $800K would be better, but we just can’t go that high. And god forbid you have problems with your contractor - then things can get VERY expensive.

Make sure the numbers work in the short term

Even though you may be buying as a long-term investment, be conservative and make sure the numbers work in the short term. Over-estimate on your renovation budget and timeline and under estimate your rental income. Get to know the rental market, figure out what your rental unit(s) will rent for, and then only assume that you’ll receive 70-75% of that since the market may go down or you’ll have vacancy between tenants.

If you’re in the market for a shell make sure that if push came to shove you can sell it when you get done if you have to without losing too much money. So if you buy at $125/sq. ft. and put $200 sq. ft. into it then you need to be able to sell it for $325/sq. ft. It’s really easy for a architect and contractor to give you a price of $800K to renovate your place, but you may find that the market only warrants spending $500-600K. Do all the numbers before you buy - some places just don’t make sense to buy. But if you really like the place put in a lower bid based on those numbers. Never be afraid of a low ball bid that makes sense when you crunch the numbers.

Pay attention to the certificate of no harassment

In the 1980s landlords started evicting tenants who were in rooms in townhouses so they could flip the building or have  units that were more profitable. Those rooming houses are called “SROs” in NY which stands for Single Room Occupancy. Since around 1985 it is illegal to convert an SRO unless everyone who’s lived there for the past three years signs a document saying that they were not harassed to leave. This protects NY’s poor who often can’t afford the rent of a full apartment. It’s not uncommon for landlords to pay $10,000-$15,000 to get someone to sign.

If you purchase a building that is considered an SRO - even an empty one or one that doesn’t seem to be an SRO, you may need to wait 3 years before you can apply for a certificate of no harassment. Then you’ll need to wait about 9 months to actually get the certificate, and then you’ll have a year of renovation. If you absolutely love the place and don’t mind waiting 5 years to live there, go right ahead, but otherwise always insist on seeing the certificate of harassment before you even start bidding on the property.

It’s amazing the things brokers will say when they don’t have a certificate of non-harassment. Sotheby’s claimed an SRO on Strivers’ Row was a 2 family. I’ve also heard “it will be delivered vacant” as a response (as if that changes anything), or “we’re in the process of getting it”. As much as you like the place, if they don’t have the certificate - move on…

Loans are available

Financing is a critical component of buying a townhouse and Wells Fargo seems to be the bank most eager to issue rehab mortgages on Harlem shells (they’re possibly the only bank doing those loans). Your interest rate will be a bit higher, you’ll have some extra expenses to cover their management of your construction, and there will be a lot of hoops to jump through - but it is possible to get a loan. We recommend speaking with Michael Stein (Michael.B.Stein@wellsfargo.com) if you’re in the market for a townhouse.

Just imagine - lots of space in Manhattan…

When it’s all said and done, if you can get the numbers to work for you, you’ll have a wonderful home with tons of space in Manhattan. Space is a pretty rare thing to have in NY. So all of the hassle really is worth it…

And on top of it all, in 30 years when you’ve paid off your mortgage you’ll still have rental income that will more than cover your housing costs. So you’ll live rent-free in Manhattan. Not a bad deal - but at this point it’s all about the long-term investment.

I genuinely believe that in 5 or 10 years Harlem will start going up again very quickly and dramatically and next time the gentrification will stick. If you’re well positioned on the wave you’ll have a great place to live, at an affordable price, with solid rental income, and tons of equity in your home. All in all, a very good deal…

We’ve been looking at townhouses in Harlem for about a year now and saw at least 30 different places (not including drive-bys). At first I was only interested in Hamilton Heights and Sugar Hill (aka “West Harlem”) which would have had us near the A, B, C, and D trains at 145th Street. Being two stops from 59th Street (on the A and D) seemed like it would be great. The nice part about Hamilton Heights / Sugar Hill is how stable the area encompassed by the historic district is. It really is lovely, but once you get outside of the historic district it’s hit-or-miss. The bottom line was that there was  nothing available in our price range on a block we wanted to live on. I’ll be doing blog posts in the near future on the various places we looked at and the reasons why they didn’t work out…

I really didn’t know that much about Central Harlem, but as Hamilton Heights & Sugar Hill started drying up we started looking at places further south and east. Strivers’ Row is stunning, but it wasn’t quite in our price range and the subway access was a bit bleak. Strivers’ Row townhouses do have garages, but that doesn’t help the people we want to visit us and work for us. The other issue in Central Harlem were the rather large and ugly housing projects that were built in the 1950s. I just refused to live in a place where I’d have to walk past something like that all the time. Other places were on the 2/3 train and while that was OK, it wasn’t as good as being on the A, B, C, D.

In early October our (wonderful) broker, Maria McCallister of Barak Realty, suggested we look at 168 West 123rd Street. Up to that point I had found most of the places we looked at. I’m not quite sure why I kept skipping over that particular listing, but (obviously) I’m quite happy she suggested it. As I went over the details of the property I realized the location was pretty incredible. It wasn’t near any big housing projects and it was within easy walking distance of the 2, 3, A, B, C and D trains. And since this was Central Harlem it was just 1 stop from 59th Street on the A & D trains. And the 2/3 gives us great access to the Upper West Side.

The building had the critical “certificate of no harassment” that you need to convert the building to 2 family. There is public housing close to our place, but it’s the type of building that you don’t know is public housing unless someone tells you or you’re particularly well-versed in the tell-tale signs. I knew the townhouse was one of a group of townhouses that were all being sold by the same owner - TPE Townhouses Harlem. At the time I didn’t know much about TPE or the story behind those particular townhouses. In the coming months I’d learn a lot more about them than I ever wanted to…

When we looked at the building we realized it was a total shell. There were no floors, no windows, not much of anything - just 4 walls, a leaky roof, and some rotting floor joists. It was sorta cool - you walked down into the cellar and looked up 60 feet to the roof. It was somehow very peaceful and had a strange beauty about it. Here’s a picture of the interior - it’s the view looking up. The timber you see are old floor joists (they happen to be some of the better, less rotted ones)…

As you can see, there are no “original details” to preserve. In other places there may be plaster walls, or original tile work, or old fireplaces. While we would have been game to take on a project with original details, they do create a bit of a problem since you have to do the construction somewhat surgically in order to preserve them, which will increase cost somewhat. None of that is necessary here. It also gives us a completely blank slate to construct whatever we want (and can afford).

The good part is that people with total shells are more realistic about the value of their place than other people are. Finding realistic sellers was one of the many problems we encountered in our search. Most owners just didn’t (want to) realize how far the values of their places had fallen since the height two years before. The reason we bought was because values were down about 65% from their high in 2007. That’s a hard pill to swallow for owners. Estates were some of the only people who were being realistic.

Another seller that was being pretty realistic was TPE Townhouses Harlem. They had purchased 11 townhouse shells in 2004 - 2005. They were all townhouses that had been involved in mortgage fraud starting in the early ’90s. Unbelievably the mortgage fraud was perpetuated by churches who typically would buy townhouses at inflated prices from accomplices and then take out the maximum federally-insured mortgages which they would promptly never pay. The church involved in the TPE Townhouses was Beulah Church Of God In Christ Jesus. I do not know the particular details of the Beulah case - just how it turned out. Based on how it turned out there’s a very good chance Beulah didn’t actually commit the fraud, but again - I don’t know. In some of the cases people would forge documents pretending to be the churches so the churches were involved but not guilty of any wrong doing. I do know there was a court decision in 2002 that determined that Beulah was the actual owner of the properties. TPE bought our particular townhouse from Beulah in 2004 for $1.13M.

TPE then seems to have wasted the next three years of opportunity. They could have developed and sold the properties at the height of the market in 2007 for a huge profit. In 2005 they took out a blanket mortgage on 11 townhouses for a total of $14.3M. They’ve developed the two most valuable buildings that are over on Frederick Douglass Blvd (8th Avenue) in the heart of “SoHa” (South Harlem - the new and upcoming area in Harlem that’s been recently gentrified), but they only did that development recently. The other 9 townhouses they decided to sell just before the market crashed.

TPE put our place on the market in July of 2008 for $1.1M. In November they lowered it to $995K. In March of 2009 they lowered it to $895K and a week later reduced it again to $795K where it stayed for quite a while. We saw the place for the first time on 10/15 and put in an admittedly low-ball offer of $450K the next day. It was rejected and we were told our offer “needed to start with a 5″. Almost 3 weeks later, on 11/5, we came back with an offer of $500K. We then continued to take our time negotiating the price because some other properties came up that we were interested in. On 11/13 they reduced the price $100K to $695K most likely trying to see if anyone else would come in with a higher bid. At this point we gave our broker a ceiling price that we couldn’t go over and told her to see what she could do. By this point in our relationship with Maria we knew she was very good at negotiating price and we trusted her. After a few rounds of negotiation, the day after Thanksgiving (11/27) we got the call that the seller accepted a price of $530K. (That’s less than half what they paid for it in 2004 and what they listed it for a year an a half before).

We were thinking that since it was technically an all cash deal we might close before the end of the year. Boy, were we wrong! First things were slowed down by TPE telling their lawyers to put as little time into the closing as possible to reduce costs. I should mention that TPE is Tahl Propp Equities which is a big Harlem landlord that seems to own over 100 buildings in Harlem alone as well as some fairly large office buildings in Midtown. Tahl comes from a well-established NY real estate family. Propp was one of Donald Trump’s lawyers at one point. This sale was pretty insignificant to their overall operations.

Then we hit a wall with title issues. Given the sordid legal history of the building our lawyer insisted in using his own title agent and insurance company - not the one TPE was insisting we use. In fact, they wouldn’t even go into contract unless we either settled the title insurance issue or used their title company. So we waited. In a hotter market not being in contract would have been dangerous. But in this particular case we were pretty safe. It wasn’t in the best interest of the seller or the seller’s broker to get another offer on the place. They still have about a half dozen similar properties to sell. It’s much better that they make two sales than one at a slightly higher price.

It wasn’t until early February that the title issues got settled. The seller’s title company was actually a pretty good company so now we have two big, solid title companies that think the building is OK, which will help when we go to sell. We signed the contract during the (first) big snowstorm on 2/10 and the seller’s signed a week later on 2/18 and we closed yesterday, 3/3.

The closing was actually a bit up in the air there for a little while. Apparently the seller’s bank was giving them difficulty about it. Remember, they initially had a $14.3M mortgage covering 11 buildings. They’ve developed two of the buildings, and sold maybe half the others ones. It makes me wonder how well that loan is collateralized these days… I know our final payment went 100% to the bank (The Community Preservation Corp). I’m guessing a fair amount of the deposit went to the bank as well.

So now we’re working on plans with our architect. More on that soon…

Just some basic info on the building - It’s 15 feet wide, 5 stories tall (most are 4 stories). The usable interior space will be about 13 feet in width. It’s longer than most townhouses - 58 feet. That means we can have decent sized bedrooms of 200+ sq. ft. The ground floor and part of the cellar will be a rental unit (residential or commercial) which will help offset the cost of the mortgage.

Here are some pictures of the front and back of the building. The big window on the parlor level is nearly 8 feet tall and 4 feet wide! The front of the building faces north. You can see in the picture how there’s an alleyway between us and the apartment building to the right. This will be helpful since we can punch holes in the wall and have windows in the bathrooms, and vents for the kitchen range hoods.

The back of the building will be incredibly sunny since it faces south. Some of the windows you see are about 7 feet high and 3 feet wide - so the rooms on the back of the building will be incredibly sunny. Obviously the entire back wall has to be resurfaced and the brick repointed.

It’s a huge project, but it’ll be fun and the end result will be pretty spectacular. And no, we’re not doing the work ourselves. Everyone seems to ask that but it’s an absurd question… Just monitoring the work and choosing finishing materials will require an incredible amount of time.

Children have wonderfully creative minds and I can just see me envisioning a stair case / slide combo like that as a kid and thinking it would be great fun. One vivid memory from when I was young was wanting a place that was a big empty loft that was so big I could roller skate around in it.

Times change, needs change, and practicalities rear their ugly heads. But part of me thinks that a combo spiral staircase and slide would make a great fire escape on the back of a townhouse :)  But then I worry about what it would cost and the budget…

[The chevron pattern you see in the wood floor in that picture is another detail we've been thinking about incorporating. So there's more in that photo than you might think.]

So what do you think? Weird or Wonderful?

To me the question is which one would I most want to live in? I think my favorite would be the Urban Cactus high rise apartments in Amsterdam (see pic to the left). It’s wonderful - huge terraces, great foliage… Who wouldn’t want to live there?

Too much of architecture is just dull and boring. I’m fine with preserving the character of some neighborhoods by doing “predictable” buildings, but too often those buildings aren’t all that well done and they just fail to make the neighborhood a better place. The apartment buildings on the 20 weirdest list are pretty much all ones that capture the imagination and give back to the community. That should be applauded, not laughed at…