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Full Steam Ahead

The market continues to break records and, besides the seasonal factor, it does not seem to be slowing. The YTD total volume is already well past any previous total yearly volume and there’s still a massive pipeline of deals. Also, to put further emphasis on how extraordinary this market is, keep in mind that April through June volume was way down compared to other strong years.

Here is year over year comparison of YTD total volume:

’09 – $339mm *Lowest total yearly volume.
’10 – $574mm
’11 – $424mm
’12 – $633mm
’13 – $630mm
’14 – $842mm *$1bn+ year.
’15 – $727mm
’16 – $838mm
’17 – $917mm *$1bn+ year.
’18 – $940mm *$1bn+ year.
’19 – $811mm *$1bn+ year.
’20 – $1.400bn *$1bn+ year. Already record year and approximately $370mm in the pipeline.

Land Bank is going to be flush with cash (it’s already collected $28mm). Should be interesting to see what they buy…

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Hot off the Presses – over $1bn Sold…

I always find it amazing how what seem like benign issues, from a design flaw to the listing got stale to a plentitude of other factors, can drastically affect value. One would think, design flaw – furniture can fix that; listing got stale – drop the price a little and that will reinvigorate it, etc. But, it is not that simple. Take 10 and 14 Pippens Way – same size lots that abut each other, almost same livable square footage 4,926 sf and 4,300 sf, respectfully, both have pool, spa and cabana and similar quality finishes. 10 Pippens Way sold for $5.55mm on 8/20/2020. 14 Pippens Way sold for $4.6mm on 9/3/2020. That’s basically a $1mm, or 20%, delta! Why? Not entirely sure, but there is one glaring difference, 10 Pippens Way was on the market for 5 days; 14 Pippens Way was on the market for 526 days. I’m a firm believer in pricing the property to sell right out of the gate. “Testing” the market can lead to the disastrous outcome of the listing getting stale, which makes buyers think there must be something wrong, which ultimately leads to a lower price.

The market continues to crank. It set a new record – the earliest it has broken the $1bn mark in a calendar year by far.

Year over year comparison of YTD total volume:

’09 – $256mm *Lowest total yearly volume.
’10 – $463mm
’11 – $370mm
’12 – $516mm
’13 – $507mm
’14 – $699mm *$1bn+ year.
’15 – $596mm
’16 – $712mm
’17 – $780mm *$1bn+ year.
’18 – $797mm *$1bn+ year. Highest total yearly volume.
’19 – $698mm *$1bn+ year.
’20 – $1.049bn *$1bn+ year.

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Outdoor Showers and Fires

Labor Day came and went – still here. Anyone who is still here on Nantucket is in for the treat of Fall ’20 – everything’s open, get into restaurants, play on golf courses, the weather is warm during the day and cool at night, the fish are biting, the surfs up – overall epic.

The market remains strong. Within a week in June, the market went from spiraling down to catapulting up. Market’s on pace to beat the record year by 30-40%. There’s currently $623mm pending sales marked in the MLS. There’s probably close to an equal amount not marked. And, it’s only September. So, $670mm closed + $623mm marked pending + $623mm unmarked pending = $1,916mm. $2bn is in strike zone…

Year over year comparison of YTD total volume:

’09 – $193mm *Lowest total yearly volume.
’10 – $316mm
’11 – $305mm
’12 – $452mm
’13 – $401mm
’14 – $522mm *$1bn+ year.
’15 – $500mm
’16 – $594mm
’17 – $626mm *$1bn+ year.
’18 – $617mm *$1bn+ year. Highest total yearly volume.
’19 – $584mm *$1bn+ year.
’20 – $670mm

Getting close to time of year when we miss the outdoor shower, but welcome the fire.

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Let’s do the Math

Bought in 2012 for $1.3mm – put down $.3mm and financed $1mm. Added $.4mm of improvements, which let’s say is 50% financed. So, out of pocket $.5mm with $1.0mm debt. Sell for $3.3mm. Pay closing costs of $.2m and debt of $1.0mm and have $2.1mm left. Basis is $1.3mm purchase plus $.4mm improvements + $.2mm closing costs = $1.9mm. Pay capital gains taxes on $3.3mm – $1.9mm = $1.4mm * 35% ~ $.5mm. Walk away with $1.6mm after investing $.6mm eight years ago. Linear return – 33%. Compounded return – 13%.

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Rocket Fuel

What happens when rocket fuel is added to a strong market – the market goes BOOM!

What’s the rocket fuel?

The main tangibles are: low interest rates, decreasing supply of inventory, record high equity markets.

The main intangibles are: appreciating the value of time, being isolated from chaos of mainland, confirmation that remote work is an option, best weather in the world.

This year is more than likely going to be a record year.

Year over year comparison of YTD total volume:

’09 – $161mm *Lowest total yearly volume.
’10 – $272mm
’11 – $260mm
’12 – $332mm
’13 – $290mm
’14 – $453mm *$1bn+ year.
’15 – $425mm
’16 – $484mm
’17 – $499mm *$1bn+ year.
’18 – $534mm *$1bn+ year. Highest total yearly volume.
’19 – $494mm *$1bn+ year.
’20 – $476mm

A tangible number that makes you go wow – there are currently $450mm of marked pending sales and it’s only August 11th…

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And the Lights Went On

The rental and sales markets have been on serious roller coaster rides. When the virus hit, there were a ton of rental cancellations and multiple sales deals fell through. Then, June 8th came, the governor announced short-term rentals were allowed and there was an unprecedented surge of demand, especially for longer terms than usual and pools. Then, in the last few weeks, between pent up demand, low interest rates, decent stock market, the realization that a lot of people’s work can be done remotely and the desire to be on Island, the sales market caught on fire and is still blazing. In the last three weeks, at least $225mm worth of property went under agreement. Considering that a $1bn year is considered a strong year, that is astonishing…

Expectations are everything. When you step forward, you expect your foot to go forward. But, a whirlwind comes and your foot doesn’t step forward, it steps somewhere where you weren’t expecting, but hopefully somewhere great.

I was expecting Stidham to start for the Pats, which I was pumped about, but felt a bit lackluster. A whirlwind came to expectations and now Cam Newton’s in New England and we’re fired up about the season – bring it!!!

How anything, everything can change so quickly. Maybe expectations aren’t everything…

Year over year comparison of YTD total volume:

’09 – $139mm *Lowest total yearly volume.
’10 – $250mm
’11 – $223mm
’12 – $287mm
’13 – $256mm
’14 – $393mm *$1bn+ year.
’15 – $330mm
’16 – $426mm
’17 – $408mm *$1bn+ year.
’18 – $487mm *$1bn+ year. Highest total yearly volume.
’19 – $423mm *$1bn+ year.
’20 – $344mm

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Fresh Air

Island’s opening, fish are biting, flowers are blooming and the weather is gorgeous – all welcome breathes of fresh air…

This could be total rumor mill, but the best lockdown real estate story I heard was regarding the sale of a big estate, which sold for $23.5mm last month. The property was originally marketed as two separate parcels, one was listed for $16.75mm, the other for $11.475mm. Apparently, the Buyer originally put just the one listed for $16.75mm under agreement, but the sub-division into the two parcels had not been completed through Land Court by the time the virus hit. Land Court got shutdown, so the Buyer couldn’t close on just the one parcel, but he really wanted to close. So, he made the logical move and closed on both – gotta love Nantucket real estate:-)

The rental market is surging and the sales market is showing signs of life. Considering March, April and much of May were crickets on the sales side, the numbers don’t look too bad. Between pent up demand from the spring market or lack thereof, the 3rd and 4th quarters traditionally being our strongest quarters, historically low interest rates, strong stock market and people reflecting on where and how they want to spend their time more than ever, I predict the 3rd and 4th quarters are going to be strong.

Year over year comparison of YTD total volume:

’09 – $109mm *Lowest total yearly volume.
’10 – $189mm
’11 – $162mm
’12 – $254mm
’13 – $164mm
’14 – $317mm *$1bn+ year.
’15 – $252mm
’16 – $366mm
’17 – $316mm *$1bn+ year.
’18 – $392mm *$1bn+ year. Highest total yearly volume.
’19 – $313mm *$1bn+ year.
’20 – $294mm

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Beaches and BBQ’s

Hope everyone is hanging in there. Extra special Happy Mother’s Day to all the moms making it happen.

A couple trends:

The sales market is slow because we haven’t been able to show property. But, there are hungry buyers eager to lock in historically low interest rates (sub 3%).

Although, there are many rental cancellation requests, there are also many rental requests for tenants to extend their stays and new rental requests are for longer time frames than typical.

A few predictions:

Longer term rentals will become more common. Currently single week rentals account for 80% +/- of all summer leases; this number will decline for the foreseeable future.

As long as the island is open for business, high-end retailers will do well. They’ll be limited to amount of customers in their shops at a given time, so when it’s a customer’s turn to go into the shop, they’ll be more ready to pull the trigger, as going for a second look won’t be nearly as easy as past summers. And, there will be more “by appointment” business that will result in big ticket sales for the shopkeepers.

Areas with bigger acreage will get hot.

Pools will continue to be en vogue.

There will be lots more beaching and bbqing this summer.

Year over year comparison of YTD total volume:

’09 – $97mm *Lowest total yearly volume.
’10 – $153mm
’11 – $124mm
’12 – $191mm
’13 – $116mm
’14 – $238mm *$1bn+ year.
’15 – $203mm
’16 – $286mm
’17 – $247mm *$1bn+ year.
’18 – $344mm *$1bn+ year. Highest total yearly volume.
’19 – $244mm *$1bn+ year.
’20 – $232mm

Remember, what doesn’t break us makes us stronger and we ain’t breaking!

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On a Positive Note…

Interestingly enough, this pandemic is causing some people to want to buy more than ever on Nantucket. I had a client call me the other day and he said, “This pandemic has put my priorities in perspective. I love Nantucket. I can afford to buy, so what am I waiting for? Send me some listings and let’s plan on getting a deal done when I’m there this summer.” He understands the market is probably not going up in the short term, but he knows it inevitably will in the long run. Couple that with his purchasing power due to the historic low interest rates and he’ll ultimately be making a great lifestyle and financial investment.

As you can see, 2020 was shaping up to be another strong year, but sales volume is a lagging indicator. So, will be telling to see where these numbers are next month…

Year over year comparison of YTD total volume:

’09 – $69mm *Lowest total yearly volume.
’10 – $117mm
’11 – $86mm
’12 – $109mm
’13 – $81mm
’14 – $190mm *$1bn+ year.
’15 – $175mm
’16 – $223mm
’17 – $199mm *$1bn+ year.
’18 – $289mm *$1bn+ year. Highest total yearly volume.
’19 – $182mm *$1bn+ year.
’20 – $202mm

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Time To Invest?

With interest rates at all time lows and rents stable on Nantucket, could be a great time to buy. Let’s say you purchase a $2mm property that would gross $150k in rent. You put down $600k and get a $1.4mm, 30 year fixed loan at 2.9%, so your payment is ~$6k/mnth., ~$72/yr. Deduct other expenses of ~$68k, including commission, and you cash flow $10k. Assuming the Nantucket real estate market trends very similarly to the S&P 500 over the long run, knowing the S&P 500 has appreciated 4.5x over the last 30 years and assuming that trend will continue over the long run, the $2mm property will be worth $9mm in 30 years, so you gained $8.4mm in equity on your $600k investment, a 14x cash on cash return. And, that doesn’t take into account appreciation in rents (yes, expenses will go up, too, but your biggest one, mortgage payment, is fixed) or other benefits like depreciation and use of the property. This is very much simplified, but sounds compelling.

The market continues to crank.

Year over year comparison of YTD total volume:

’09 – $37mm *Lowest total yearly volume.
’10 – $81mm
’11 – $57mm
’12 – $73mm
’13 – $61mm
’14 – $144mm *$1bn+ year.
’15 – $137mm
’16 – $156mm
’17 – $124mm *$1bn+ year.
’18 – $197mm *$1bn+ year. Highest total yearly volume.
’19 – $119mm *$1bn+ year.
’20 – $164mm