Micro-neighborhoods

That’s a term I just coined (or I think I did; I could have read it somewhere and it stuck) to explain why the builder of 5 Dialstone and I have such different opinions of his house. I think he’s looking at the quality he has so obviously built into his house, and the cost he incurred achieving that level, and says to himself, “it’s as good as the best in Riverside so I’ll charge for the best.”

He was so angry at me because I tossed out a price opinion before I’d seen the house, and he felt that was unfair. but I was basing that opinion on the location of the house – the quality is irrelevant. It’s sort of like a motion for summary judgment in law where the judge assumes that everything the plaintiff alleges is true and still rules that, as a matter of law, there is no remedy at law. Here, assume that a house is of the very finest quality available – there’s still a set price a street will support and no higher.

What I think this builder doesn’t get is that Riverside is not one monolithic neighborhood. Prices break at a number of locations: south of the Post Road, south of Lockwood, south of the railroad and south of Riverside Avenue. Then they adjust for individual streets: Club Road gets higher prices than Gilliam Lane, parallel to Club and 150 yards away. Winthrop is more valuable than Crescent, Leeward more valuable than Oak, etc. etc. Dialstone is south of the Post Road, so it’s in a better notch than Sheephill Road, but that’s about it. A recent sale on Indian Head saw a house on one acre, with pool, sell for $3.2 million. The house was dated, certainly, but could be brought up to 2009 standards for $475,000, so you’d have the same $3.675 sunk in it as you would if you bought Dialstone. Yet, in another ten years, both houses will be just as dated again but the quarter acre on Dialstone will still be exactly that and Indian Head will still be Indian Head. Which do you think is the better value? Or Welywnn Road, on a half acre, that just sold for, what, $2.8 million? A five year old house but again, easily updated and again, Welywnn will be a more valuable location than Dialstone ten years from now, just as it is today.

So I meant no disrespect to the builder when I tossed out a figure like $2.6 million before I’d even seen his house. I watched it go up, saw the many, many months he spent on it and expected it to be of high quality. And what he permitted me to see matched my expectations. But I haven’t changed my opinion on what a corner lot on Dialstone and Lockwood will support and I don’t feel I owe the builder any particular sympathy. I’m pretty sure he bought the land direct to save himself a 5% commission, which is fine, but as an out-of-town builder, he might have more than made up that 5% by receiving some local knowledge and advice on how much to sink into a house at this location.

But maybe not – that spec house on Lockwood and Sound beach sold for the astonishing price of $4 million a year ago. Less than the $6 million that out of towner dreamed of but still a price that boggles my mind. I figure that the buyer lost at least a million the instant he got up from the closing table but that’s just my opinion.

So I hope 5 Dialstone finds a similar buyer who is willing to pay top dollar for a top quality house in a B- location. It can happen, and it does.

19 Comments

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19 responses to “Micro-neighborhoods

  1. Accolay

    B- location? More like C-. Even Hooker Ln is a better location.

  2. Retired IB'er

    Jeez, Chris, I thought that everyone, and anyone, involved in real estate understood the three most important things about a specific property:

    1. Location
    2. Location
    3. Location

    To starkly appreciate this all one as to do is look at an apartment in The City on Fifth Avenue and then the “same” one on Madison… or Park Avenue and then Lexington. Or for that matter just move off the Avenue an apartment building up on the side street.

    • christopherfountain

      Builders seem to forget that IB’R when they hit Greenwich. One builder, temporarily working in Greenwich until he moves to upstate New York for an indefinite period, told me that every builder in Westchester dreams of doing a project “in Greenwich’. They don’t care where in Greenwich until it’s too late.

  3. Anonymous

    Can you tell me, is it better, in Riverside, to be on a nice lot, north of the Post Road, or south of, and adjacent to the Railroad ? Land values alone.

    • christopherfountain

      Well Anon, a decent house on, say Rainbow – nice street, really pleasant neighborhood, might bring $1.3 million. A lesser house, but still decent, on the railroad side of Summit would probably also fetch that, so I’d say they’re roughly equal. Then you have to make a personal decision. Some people don’t like the idea of their kids having to cross the Post Road to get to Eastern and will gladly take the lesser house on the “right” side of the Post Road, others will gladly trade that for a nicer yard, quieter street and bigger home. Entirely subjective decision and i wouldn’t push one way or the other.

  4. Squat Monkey

    Chris, if I wanted to squat in some spec homes for the next few years while they sit around unoccupied, which ones could I count on for the next year? I’m thinking 2-3 months in each. I’d even be willing to sweep up dead leaves when they blow in.

  5. cos cobber

    CF, you haven’t made much sense lately (ie your relentless disdain for Cos Cob), but you really have nailed an essential and repeatedly overlooked fact about Greenwich. Each street in Greenwich has a price range no matter what you build. You absolutely cannot over generalize, it really is street by street. We dont have a monotonous landscape. Each nook and cranny has a different value due to a litny of reasons such as; schools, street traffic, surrounding land use, proximity to water, views, noise, wetlands, general street aesthetics, etc. It just doesn’t matter what the builder puts into it, most streets have a tolerance cap. The caps are particularly true in neighborhoods with lots under an acre.

    If you can afford X, you want to be on street Y. And nobody, particularly in this economy, should buy a house that is priced far above its neighbor. There is safety in numbers and we know it whether we acknowledge it or bury it in our subconscience.

    On occasion there are outliers. Builders need to be smart enough to recongize when a spec house was sold by luck and not by wise business planning. Its these misleading lucky outliers that get the builders into trouble as they misread these for a sea change when its a mirage.

  6. anonymous

    Location*3 in real est; cash flow and quality of management for companies (and entry share price); safety and reliability for cars and planes, etc etc

    Such basics should be obvious to any layman buyer/investor, let alone any professional in the industry

  7. pulled up in OG

    Put Cos Cob Avenue on steroids, you get Lockwood Road.

  8. lisa

    Chris,
    What do you think about the micro-neighborhoods of Parsonage Road? Such as the lower third (North Street to Ridgeview intersection), the middle third (Ridgeview to Husted/Beechcroft Road), and the upper third (Husted/Beechcroft to Lake Avenue). I have always thought that they were 3 distinct sections, with high variability in houses, lot sizes, aesthetics, and therefore value. Although, there are more newer and larger houses as time goes on, and it is one of the best areas for families to live in Greenwich, with great access to public and private schools, town, freeway, parkway, etc. It is the geographic heart of Greenwich.

  9. Krazy Kat

    Homes are like stocks in a certain way. When you are in a bull market, nearly all stocks rise with the market. Especially so when relatively unsophisticated investors enter the game and just buy what appears to be hot, irrespective of the merits, financials or outlook of that particular stock.

    As we have heard innumerable times, “a rising tide lifts all ships”. Or, as another sage observed, “you don’t know who’s swimming naked until the tide goes out”.

    But when things become more challenging (tech stocks in early 2000 comes to mind), significant differentiation sets in and quality then dictates performance. When the market begins to pull back, those that rose on misplaced enthusiasm fall furthest and fastest while better positioned companies fall less quickly and less deeply.

    I think Greenwich real estate was not different. During the go-go years, anyone could buy a house or land, fix or build and then flip to the next person at a profit, sometimes significant. Add in cheap financing and the market becomes less rational and prices are pushed up further (sound like stocks during the cheap money Greenspan years?). Then the relatively “unsophisticated” join the game in the late innings. Not knowing much about the market, they find a lot/house/stock and buy. But when the market turns and their project is only partly complete, more rational pricing and location-specific dynamics show the error of their ways.

    There are some differences that one could argue break this analogy. Transactions costs and speed are chief among them. Also, in the financial markets, short sellers play an effective role in correcting asset mispricing. Lastly, hedging existing positions is possible in the financial markets but not in the RE market.

    So IB’r states the truth in that L-L-L has returned and now shows who bought based on irrational exuberance rather than fundamentals.

    The spec builder should recall that it makes no sense to kill the messenger when you don’t like the news.

  10. ogrcc

    Chris,

    surely the house on summit is more desirable, it is within walking distance to the train station, that alone is a big plus.

    it is closer to OG, the beach and water.

    Riverside school instead of north mianus

    did I miss something?

  11. Towny

    Three streets in succession. Different neighborhood, different price, different feel. all within 200 ft of one another.

    1. Sherwood Place
    2. Maher Avenue
    3. Maple Avenue

    Which Street would you the reader rather live on?

  12. Sanjay Bigglesworth

    I am curious to know if there were any non-spec custom homes built in Greenwich in the last 5 years. Not the massive ones, but more in the $2-4 million range. Was it even economically feasible?

  13. Xpat

    Good analogy Krazy Kat.

  14. Krazy Kat

    Towny: Maher for me. Means I don’t have to drive there on Halloween, though my candy costs would soar since we get no trick or treaters these days.

  15. Red

    Lisa, you asked Chris for his opinion but I will offer mine too:

    Parsonage is lovely to look at and has many great houses, but for better or worse, it is still a high-traffic short cut between more distant locations (via the Lake Ave end) and town (via the North Street end), as well as GCDS, GA/Brunswick, GHS, and Exit 4 on I-95. Full of SUVs, construction vehicles, delivery trucks, ambulances to the Witherell Home, etc. So for me the best segment of the 3 you suggested would generally be in the 2-acre zoned portion between Husted Lane and Lake Ave, because the houses sit farther back from the road. Still, all of Parsonage is convenient to town and lies in the North Street School district.

  16. Towny

    Krazy…..one could use your analogy for the recent spec bubble for baseball cards.

  17. FlyAngler

    Towny:

    The anology works for every bubble, some more, some less. Think tulips from the 1600s – some late players were left owning hundreds of bulbs that were good for planting but not much more.

    Think Beanie Babies (if you must) – some late players thought they were going to make a killing, until they noted that BBs were being sold at the mini-mart at the local Exxon station.

    Defense stocks in the late 60s. Tech stocks in the late 90s. Ethanol company stocks a couple of years ago.

    Real estate in every toney neighborhood in the country too.

    I am a rube so I can’t speak to art and collectibles but we “know” manias occur in those markets regularly through history.

    BTW, I passed by the Dialstone house this afternoon. Chris is right.