Join industry visionaries Pete Flint, Spencer Rascoff, Ryan Serhant and more at Inman Connect New York, Jan. 24-26. Punch your ticket to the future by joining the smartest people in real estate at this must-attend event. Register here.
Luxury penthouses that climb high into the sky can command a hefty price.
Consider one example: The penthouse at Central Park Tower — currently the tallest residence in the world — hit the market for $250 million last month.
The staggering heights, the breathtaking views, the detailed design — it can all be quite glamorous.
But for the agents involved in the transaction, penthouse properties also come with their own unique set of challenges. And with those eight- and nine-figure price tags on the line, it helps to know what kind of barriers might arise in the process.
These are some of the biggest challenges that can come up when transacting a penthouse unit, luxury agents told Inman.
Working with large teams
Patricia Vance | Douglas Elliman
At penthouse prices, it’s not unusual for a buyer to be armed with more support staff than the typical transaction. That team could include a buyer agent, architect, designer, attorney and potentially a property manager, depending on the buyer.
“Everyone has their role and you work together as a team, which sometimes comes with challenges,” Patricia Vance of Douglas Elliman told Inman.
Even just logistically speaking, it can be tricky coordinating so many people at once. But also managing personalities and different preferences, put simply, requires a lot of teamwork.
Customization
Even with newly constructed penthouses that are seemingly flawless, it’s typical for a luxury buyer to come in and want to make their own mark on the property with some kind of addition or alteration. Working with a developer who’s already designed a space with a specific idea in mind and then trying to adapt it to a buyer’s wish list is no simple task. It requires patience and good negotiating skills on the part of an agent to make sure each party is satisfied.
“Those sometimes become a challenge with redesigning something that is already perfect,” Vance said.
If a buyer wants to add a pool to a rooftop, for instance, it also becomes an engineering question of whether or not the request is physically manageable.
Dealing with co-op boards
If a penthouse is part of a co-op, this adds another layer of complexity to the transaction. For instance, most penthouses that are in prewar buildings in Manhattan are also part of a co-op, which means that buyers interested in these properties need to prepare for a slightly more complicated process.
For one thing, the co-op board needs to approve any potential buyer and typically any changes that the buyer would like to make to the unit they’re buying. In some cases, there may also be restrictions on how they can purchase a property within a co-op, Steven James of Berkshire Hathaway HomeServices pointed out to Inman.
One of James’ brokers was once working with a famous New York actress and songstress who wanted to purchase one penthouse apartment within a co-op that had originally been a larger penthouse unit and was subsequently divided into two. Both units were for sale, but she just wanted the one.
Steven James | Berkshire Hathaway HomeServices
Unfortunately, the co-op board would only sell them together as one transaction with the stipulation that the buyer restore them to one unit. James’ broker couldn’t bear to break the news to the superstar, so James had to do it himself. She gave him a call and he gave it to her straight.
“And there was this long, enormous pause, and all I could think of are all the songs that she sung over the years that have meant something to me,” James said, as he waited with bated breath for her response. “And she said, ‘Mr. James, thank you for finally telling me what’s going on.’ And I said, ‘You’re most welcome,’ and she hung up. She bought both apartments and was approved, and in the last couple of years, she sold the completed unit after living there for a number of years — and she made four times what she paid.”
Determining value
Some penthouse units may be so one-of-a-kind it can be challenging to know how to price them.
Loy Carlos of SERHANT. — who is currently representing the highest residence in the world, the 1,416-foot-high penthouse at Central Park Tower which is priced at $250 million — said it can be tricky to come up with a value that both buyer and seller can agree upon when available comps might not quite match up with the property. Then, it’s about finding a happy compromise between both parties.
“There’s always a premium, and the question is, how much premium to put on a penthouse depending on the view,” he said as one example of perceived value. “But some challenges are on square footage, especially square footage of outdoor space — there’s no real measure on how to do it. So there is an aspirational aspect of it … Those are things that, are not challenges per se, it’s just a matter of how do we value this, or that all parties agree that the value makes sense.”
Meeting homeseller expectations on a resale
Several chic new condo towers have risen in cities like Manhattan in recent years, and the one-of-a-kind penthouses in these buildings have sometimes commanded staggering prices.
But when those penthouse owners are ready to move on to the next investment by selling it off, the memory of the high price they paid when the unit was brand new can sometimes inflate their ideas of how much it should sell for as a resale — especially if the owners have made their own improvements and their egos get involved.
Because those new penthouse units are priced so high to begin with, they don’t necessarily appreciate as quickly as a seller might hope.
“I think when the developer puts up these condos and the penthouse apartment is there and no one else has found it, I think the price is far more achievable than if somebody bought it and was basically reselling it,” James said. “Because then the price really goes up even further, and that gap between what it’s really worth and what they’re asking, it’s very complicated. I think there are few buildings that get that kind of return.”
Obstruction of views
Since most of the newer condo buildings are made of more transparent materials meant to facilitate more expansive views, view obstruction does not typically come up as an issue in these properties, James pointed out to Inman.
Similarly, when a penthouse buyer purchases their unit with an agent’s help, they can learn about any zoning restrictions that might either protect or hinder their views in the future, keeping them informed about their future views.
However, with prewar properties, a penthouse view does not necessarily mean sweeping city views. A prewar property’s parapet might actually restrict views quite significantly. That can be a serious con for some buyers, but others might prefer it if it gives them a stronger feeling of privacy, or in the event that they’re afraid of heights and want the glory they believe comes with owning a penthouse without actually feeling they’re at the height of a penthouse.
Identifying the type of buyer
Loy Carlos | SERHANT.
Knowing the type of buyer who will be attracted to your property is helpful in any transaction but perhaps more so when dealing with a penthouse. These unique properties typically attract an elite class of buyers and each flavor of penthouse will appeal to someone different.
Carlos said it’s crucial to create a unique story for each penthouse an agent is representing that shows off the unit’s individuality and will call out to specific buyers.
“They’re generally unique properties that really require creative thinking,” Carlos said. “They are opportunities to really flex your creative muscles and your ability to reach the right people, to brand them correctly, to tell the right narrative … So even though right now I have four [penthouse listings], all of them have different logos, all of them have different fonts and color and texture and it all has to do with figuring out what the narrative is and how to get the right audience for it because it is a very unique product.”
He added that for most penthouse buyers, the penthouse will be a trophy property so it’s important to emphasize what sets it apart from any other penthouse.
Stan Ponte of Sotheby’s International Realty said it’s important to remember that people who purchase penthouses are typically also townhouse buyers because both classes of buyers appreciate distinct spaces.
“They are buyers who are focused on a lot of separation of space, typically living on more than one level with a really good differentiation of children’s areas and entertaining areas,” Ponte said. “So it’s really about the use of the space.”
Completing due diligence
Particularly with penthouse resales, it’s important that the buyer and their agent do their due diligence on the property since so many times previous owners may have made upgrades — and sometimes without regard for a building’s code or other regulations.
Stan Ponte | Sotheby’s International Realty
Penthouses may have been divided or combined over time or extended further out onto a terrace to add to the indoor space’s square footage, for instances, and buyers should not assume that such extensive changes were always made up to code.
“If those spaces were not combined correctly at some point in history, it’s when you try to go into contract when the attorneys find that maybe everything wasn’t fully buttoned up and done, or signed off on by the city,” Ponte said. “Another thing to be aware of is many penthouse owners over time will add things like a glass solarium or even a gas line with an outdoor grill, or even automatic irrigation that may or may not have been approved by the building owners — they just took it upon themselves to give themselves a terrace of their dreams.”
Ponte recalled one seller he represented who had expanded a room adjacent to the penthouse’s terrace by moving the room’s wall out onto the terrace by about two feet. When the property was under contract and being inspected by the buyer, the adjustment, which was not in line with the building’s regulations, was caught by the buyer’s team and Ponte’s client had to go through the trouble of moving the wall back to its original position.
Get Inman’s Luxury Lens Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of high-end real estate delivered every Friday. Click here to subscribe.
