The word “penthouse” is used frequently to describe the residence(s) on the top floor of a building. There is an undeniable air of exclusivity. Ceilings are generally higher and the views are typically the best in the building. For instance, a residence on floor 12 is easily substituted for a residence on floor 14, but a top floor unit has no substitute.
Economics:
In a rational market, scarcity bolsters prices. In the market for condominiums, it would stand to reason that top floor units should trade at a higher price per foot. But this isn’t always the case depending on the unit-mix of the building. Feedback from my clients indicate that in downtown Austin condos, residences with good views of the city or lake are more desirable to a penthouse residence without a good view in the same building, all other things being equal.
We can use Milago as a case-study. Milago has a deep transaction data set which we can study. Also, Milago’s alignment is such that the west side of the building with views of the city and lake are priced a premium to units across the hall which have views to the east. For example, in the summer of 2007 at Milago condos, nearly identical 1bd/1ba units across the hall from each other sold at $330/ft and $272/ft, the former with a view the later without a view.
Conversely, when comparing two identical floor plans, if one of those residences is on the penthouse level, the penthouse would be more desirable. By extension, the penthouse should be more expensive. Again, looking at Milago to find a good example of the penthouse premium, in the spring of 2007 nearly identical 1bd/1ba units (one being a penthouse), neither having the generally desirable city and lake view, sold at $370/ft and $329/ft.
How about two nearly identical floor plans, both on the penthouse level, one with a city and lake view, and one without? Milago PH12 sold in 2007 for $421/ft. Across the hallway PH11, without the city and lake view, sold in 2007 for $339/ft.
Take the results of recent Brazos Place auction – the penthouse unit sold at $352/ft or 25% higher than the average auction price of $282/ft. A counter example can be found at the Austin City Lofts. In 2008 a two-story top floor unit sold for $282/ft, but the residences averaged $343/ft! At the Brown Building in 2008 a top floor unit sold for $424/ft while the building averaged $357/ft.
Summary:
In a market where the substitute goods are very heterogeneous and sellers’ motivations differ, the challenge is how to extract from the data a rule-of-thumb for pricing the penthouse residences in downtown Austin condos. We have data from Milago indicating that a penthouse residence with a view of the city and lake is priced 25% higher than the same residence without the view. We have data from Brazos Place indicating a 25% premium for the penthouse over the average unit. We can also see from the Austin City Lofts example that sellers’ motivations are significant factor in pricing the penthouse residence. I will be following up with specific building-by-building look at downtown Austin penthouses.
Jude Galligan, Downtown Austin Realtor
judegalligan [@] gmail.com
512-226-3414
