6›1answering

six critical questions provides

uncommon insights

Our Aha Moment!

who whatwhere when how why

p o w e r f u l r e a l e s t a t e i n s i g h t s

A n n u A l R e p o R t W i t h 2 0 1 6 s e c o n d Q u A R t e R u p d A t e

We need to tell people more than what happened last year. i realized that simply looking backward

through this data is like driving by the rear-view mirror. so here’s what we won’t do: we won’t

simply drown our readers with Mls data dressed up with colorful charts. to tell a complete story,

you need to ask more questions. Get more data. different data. think more deeply. it led to our

icon 6>1. Asking and answering 6 key questions will lead us to sharing with you a more complete,

more insightful view of the island real estate market. so going forward, this will be our approach

to research.

My AhA MoMent

1 We know What is selling. that’s what

we previously (and all others currently)

focus on exclusively. it’s certainly helpful,

but while others will stop here, we’ll ask five

more questions.

2 We’ve hired two demographers to

analyze Who owns island real estate.

turns out there are at least four different

profiles of Nantucket buyers.

3 We’ve commissioned analyses of

Where buyers come from. turns out

it’s probably not where you think.

4 We’ve looked hard at When sales

transact. Apparently old adages about

hot and cold seasons aren’t entirely true.

5 We drilled down into the structure of

hundreds of purchases to learn how

the financing of house purchases change

across price ranges.

6 We believe we know Why the nantuck-

et market has remained strong. And

despite our focus on quantitative analyses, we

actually think a qualitative analysis is key to

understanding why.

We couldn’t be more excited about this new approach to research. We’ve got a bigger, more diverse,

and more experienced research team. We hope our breakthrough about 6>1 provides you a truly

insightful look into our powerful, complex real estate market. And we’ll use that framework

throughout the year to provide ongoing insights. let us know how we can be of value to you!

—Alan J. Worden

alan worden is Man aging Broker for Windwalker William Raveis and a recognized leader in real estate research. He is also co-founder of Nantucket’s Westmoor Club.

the answers team

i think it’s normal to feel a mix of emotions when you have one of those “aha” moments. a moment of sudden insight and comprehension. For me it was a sense of a true breakthrough about how nantucket real estate research should be under-taken, along with disappointment that i had missed it all these years.

pJ Kaizer conducts market research for Windwalker. He is a Commercial Loan Port-folio Officer with Cape Cod Five Cents Savings Bank and a member of the Nantucket Capital Committee.

alison Baumann focuses on commercial-real-estate market research and econom-ic development in New York City. She holds a Master’s in City Planning from the University of Pennsylvania.

anna tapp is a mapping and demographics expert asking “Who?” and “Where?” questions to help clients find practical connections between customers and the world.

Manas Mallik has an ex­pertise in title, open­mortgage, and assessor’s searches. For 6>1, he scrubbed home­sale data to discern the relation-ship between second­home and off-island home values.

what Looking back and surging ahead

what sort of Year was 2015? part of our goal is to “Revel in insight” and not “drown You in data.” Want

to know what sort of year 2015 was? simply put, it was a silver Medal to 2014’s Gold. 2015 came up slightly short

versus 2014, but can you blame it? looking all the way back to the beginning of 2014, it seemed like everything was

in place to push the nantucket real estate market to levels not seen since the last boom in 2005-2006. us equity

markets in 2013 wrapped up their second straight year of well-above-average returns, interest rates were being held

at historically low levels, and the local real estate market was coming off its finest two-year stretch since before the

“Great Recession.” it is no surprise then that 2014 started with a bang—and never looked back. the 102 transac-

tions and $170 million in volume in the first quarter were highs not seen since 2006. Fast forward 9 months and

2014’s results were staggering, with 524 transactions and nearly $1 billion in volume. Mission accomplished.

As we flipped the calendar to 2015, opinions varied as to whether or not the market could maintain this torrid

pace. equity markets enjoyed yet another solid year of returns, national real estate markets continued to boom, and,

all-in-all, many expected the good times to keep on rolling. others, however, were of the opinion that things can’t go

up in a straight line forever. As it turns out, based on transaction and dollar volume (the “King” and “Kong” of our

market data), the latter argument held true: 2014 experienced year-over-year declines of -9% and -26% respectively.

But that’s not the whole story. other, equally important metrics illuminate 2015 as an excellent year overall. A

silver Medal winner for certain. here are our top four insights:

$1,400,000

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$01996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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on the podiuM 2015 takes the Silver Medal for market performance, behind 2014’s Gold Medal.

1 on average, sales prices relative to original listing prices, last asking price, and assessed value as well as the average marketing time per

property (measured by the number of months that a property was listed on the market) all strengthened year-over-year to their best levels

since 2005.

what it means? More realistic pricing by sellers and increased demand by buyers resulted in stronger prices being paid for properties over

shorter marketing periods.

2 The median single-family home price increased year-over-year by approximately 7% despite decreasing transaction volume.

what it means? the spectrum of sale prices from the lowest low to the highest high increased such that the exact mid-point price for a

single-family home increased year-over-year.

3 Vacant lot sales rose from 89 in 2014 to 105 in 2015, a level not reached since 117 vacant lots traded hands in 2005.

what it means? this illustrates the preference of end-user buyers and spec builders for new product and their willingness to undertake

sometimes difficult permitting during a time of limited supply.

4 only 5 properties were taken by lenders via foreclosure, the fewest since the

start of the housing crisis

what it means? the lingering effects of the “Great Recession” continue to fade into

the rear-view mirror.

these developments paint a picture that suggests that even though we didn’t test

2014’s $1-billion milestone, there is a lot of continuing, positive momentum.

so how is 2016 doing?In a word, the 2016 market could easily be described as “stunning.” Through the first

half of 2016, markets stand strongly ahead of 2015 in terms of both transactions

and dollar volume—up 29% and 30%, respectively. Even when compared to 2014’s

near-$1-billion market, year-to-date 2016 leads 2014 by 4% in terms of transaction

volume and by 8% in terms of dollar volume.

One interesting trend that we identified since the beginning of this impressive market run in 2012 is that within each year, quarterly-transac-

tion and dollar-volume totals increase successively from the first quarter (1Q) through the fourth quarter (4Q). This has held true for both met-

rics in every instance but one, when dollar volume fell slightly from 1Q15 to 2Q15. With this in mind, 2Q16 needed to post some strong results

to keep the trend alive. lo-and-behold, after scrubbing preliminary sales data through the end of June, that challenge has been met. 2Q16 saw

124 transactions (112 in 1Q16) representing $213 million in sales ($197 million in 1Q16). Comparing these lofty totals to the gold standard that is

2014, we also see that 2016 is the new pace-setter with higher transaction and dollar-volume totals in each of the first two quarters than in 2014.

other metrics also support the “stunning” characterization of the market so far this year. compared to 2014, the average transaction price

of all sales through the first half of the year is 6% higher, the average transaction price relative to last asking price has increased by 2%, and

the average marketing time required to sell a house, measured by a property’s months on market, has decreased by approximately two months.

The single-family home (SFH) segment of the market continues to drive current market strength, outpacing every total from 2014. Through the

first half of the year, SFH transaction volume is up 10%, average SFH transaction price is up 15%, and the median SFH transaction price is up 18%

as compared to the same totals through the first half of 2014.

Through June 30 (excludes foreclosures)

All Transactions 2016 2014 %Change

Transaction Volume ...................................................................................236 ............................................... 226 ................................................4%

Dollar Volume ($000s) ...........................................................................$410,031 .................................... $380,051 ...................................8% Average Sale Price ($000s) ...................................................................$1,737 ........................................... $1,641 ...........................................6%

Median Sale Price ($000s) ....................................................................$1,213 ........................................... $1,095 .......................................... 11%

Average Months on Market ....................................................................9 ..................................................... 11 .................................................... -18% Sale $ as a % of Original Price ...............................................................88% ............................................. 88% ..............................................0%

Sale $ as a % of Last Ask Price ..............................................................95% .............................................. 93% ..............................................2%

Sale $ as a % of Assessed Value ...........................................................114% ............................................. 123% ............................................. -7%

good half 2016 beats the same period in 2014, the best year since the “Great Recession.”

sachem’s path

One market anomalySome worry that the average sales price for

the first half of 2016 has fallen 10% versus

2015. That’s where insight helps and raw

data hurts. There’s a “one time” event that

has skewed average sales prices lower.

Starting March 1, properties in the

Sachem’s Path affordable-housing devel-

opment began to transfer to the winners

of the affordable-housing lottery. Since

then, 15 of these deed-restricted, affordable

SFHs have transferred at an average price

of $362,800. That’s a huge win for afford-

ability on Nantucket, but it does impact

average prices of sold properties.

Removing this unique group of

price-controlled properties from the

analysis, the $2,262,977 average SFH price

is nearly unchanged through June 2016

versus the same period last year. A better

metric is to look at the median value—or

middle value—of SFHs. Year-to-date in

2016 the median value of SFHs is up 9%

year-over-year, and 18% when excluding

the price-restricted properties.

One interesting market anomaly thus far this year is that while SFH metrics

are showing strength, the vacant-land segment has shown weakness. Average

and median transaction prices for vacant land are ahead of where they were

at this time last year, but they all trail totals established through the first half

of 2014, with transaction volume down 13%, average transaction price down

16%, and median transaction price down 19%.

one possible explanation for the poor performance of the vacant-land seg-

ment in 2016 relative to 2014 is the limited supply that is available. since 2014,

the year-round housing crisis directly contributed to the surge in newly built

residential and mixed commercial/residential rental properties that required

vacant land. We have also witnessed, and will continue to witness, the market-

ing and sale of newly constructed, high-end speculative investment properties

that were built on land purchased in 2014 and early 2015. As the supply of

attractive, well-priced developable residential lots diminishes, its impact on the

fundamentals of the vacant-lot segment will continue to be noticeable.

waY out front 2016 (January to June) sales performance to date has been “stunning.”

20160

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why The art of quality time / By AlAn J. Worden

growing up on the water near cape cod, i was the kid whose bedroom walls were plastered with pictures and

drawings of sailboats. The first time I sailed away from the beach alone—at age 6—left an indelible memory. Even

today, i can still feel the unexpected strength of the breeze and the uneasy heeling of the sailboat.

Given this lifelong passion, my friends weren’t surprised when, over a decade ago, i decided to take a year and set

sail double-handed on a voyage covering half the globe—14,000 miles from nantucket to new Zealand. But most

of those friends had three common misconceptions about what it would be like to go

on a voyage like that.

ease vs. effort First, they imagined day after day of ease, picturing us lounging on

deck as the boat effortlessly glided over a glass-like sea. nothing could be further from

the truth. A double-handed ocean crossing requires constant, strenuous effort, the kind

of bone-tiring work that makes you feel like you’ve truly earned your sleep.

frivolitY vs. reflection second, many saw a year sailing halfway around the

world as an indulgence. For me, it was actually an awakening; an opportunity to begin

to order my adult, inner life. this voyage wasn’t a frivolous escape from the world but a

purposeful examination of how i hoped to live in the world.

lonelY vs. connected Finally, people often wondered about the loneliness of an ocean crossing. Yet as I

think of my time at sea, i don’t recall it as a time of isolation but rather as a time of connectedness. My experience

was in fact a set of deep relationships—with the environment, with those we met along the way, and with the tiny,

Pacific islands that provided unrelenting hospitality after weeks at sea. Most of all, my boat Windwalker served as a

constant source of connection. it embodied the essence of home—a familiar place whose comfort let me be the

person i was and whose challenges let me consider the person i wanted to become.

When i decided to spend a year at sea, i was a Managing director at a real estate investment bank in new York,

and i went back to that world when i returned. over the next few years, i worked hard to understand real estate

cycles in markets across the country. some days i felt that picking my way through a reef strewn anchorage was

so much easier! But then i shifted my focus from markets to consumers. And slowly i began to discern how the

motivations i had for going to sea were actually part of a broader trend that was driving certain real estate markets.

let me explain. With our personal time in scarce supply, there is a strong desire for our moments away from work

to be more purposeful and more connected. clearly, time is our most valuable commodity. And we increasingly want

our choices to reflect the ancient conception of what constitutes “leisure.” For the Greeks of antiquity, “leisure”

wasn’t the absence of activity but, rather, a specific type of activity—the strenuous pursuit of insight and meaning

within a supportive community of like-minded individuals.

These remarks are excerpted from Alan Worden’s September 2014 speech that he delivered at the nantucket project, a prestigious annual conference that attracts the biggest thinkers with the best ideas on the planet.

this changing conception of leisure has become a force in real estate because it’s linked to powerful demographic

trends. the massive growth of pre-retirement baby boomers looking for memorable moments of leisure is driving

markets. of course, these forces aren’t in play in every real estate market, but i’m convinced they’re hard at work in

special, family-focused locations like nantucket. A friend recently noted: “people in Manhattan showcase framed

pictures of their nantucket homes in the their townhouse living rooms. But no one showcases their townhouse in

their nantucket home.” this visceral connection helps explain the enduring interest and growing value of real estate

assets in places of genuine leisure, and nantucket provides a tangible example of these forces at play.

i have become a year-round resident of nantucket, where i founded and now run Windwalker Real estate—

named after the boat i sailed half way around the world—a business that, now teamed up with William Raveis,

responds to the growing demand for memorable moments of leisure.

so my business and personal choices have been driven by the tenet that “places matter.” Just like there’s an

economic return on investment, there is also an economic return—and an emotional return—on “place.” in my

opinion, these returns will only gain strength in the years ahead.

There are certain places that are special to each of us, places we are drawn to because they allow us to reflect, to share

moments with people that matter, and to create memories that are meaningful. For me, for one year, it was my boat. Per-

haps for you, it is nantucket. Wherever that place is, we need to make these, all-too-precious moments of leisure, count.

windwalKer, the boat that sailed halfway around the world and inspired our firm’s name.

clearly, time is our most valuable commodity.

where Finding Nantucket owners’ primary homes

“Me-search” (as opposed to research) is defined as the dangerous propensity for some to believe their own desires and experiences trans-

late to actual research. if a nantucket real estate agent happened to sell 3 houses to people from cincinnati, it might lead that agent to believe

that Cincinnati represented a significant feeder market for Nantucket. So rather than conduct “Me-search,” Windwalker William Raveis hired

demog raphers to dig through the data to determine where nantucket second homeowners (nshs) owned primary residences. We started with

6,087 nantucket addresses where tax bills were being sent to an off-island address. We cleaned the data for proper geocoding using a Google

geocoding Api feed. the result was 5,860 distinct street addresses. the latitude and long i tude of each address was overlaid onto u.s. census

tract data. A census tract is a small, statistical neighborhood within a county. there are 73,000 census tracts in the u.s. so it is almost two

times more precise than the country’s 43,000 zip codes. the results:

the northeast dominates Our demographers used a Heat Map (opposite page) to illustrate the concentrations of NSHs. Four states

in the Northeast (Massachusetts, New York, Connecticut, and New Jersey) comprise 63% of NSHs. Massachusetts has 31%, New York 15%,

Connecticut 11%, and New Jersey 7%. At 6%, Florida ranks 5th, perhaps because of a concentration of Northeasterners relocating there.

not so international A surprisingly small number of Nantucket second homeowners are international. Just 1.7%. Canada, the UK, Switz-

erland, and Germany are the most notable countries.

More Massachusetts than Manhattan There’s a sense that New York generally and Manhattan (Wall Street) specifically drives

the nantucket market. But the data suggests nantucket is at least slightly more dependent on Boston and its suburbs. Qual-

itatively, a lower-than-expected correlation between Wall street and nantucket is playing out as we look at real-estate

data on Hamptons and Nantucket markets. During the first quarter, the Hamptons experienced a near-20% decline

in the number of single-family sales compared to the previous year. Against a backdrop of global uncertain-

ty, finance-sector employment fears, and a 12% decline in the Dow, Wall Streeters seemed cautious about

second-home acquisitions. On Nantucket, the situation was markedly different. First-quarter sales were

downright booming. The number of single-family sales rose 33%. Correcting for the “one time”

sale of affordable units in Sachem’s Path (see page 3), single-family sales were still up 20%.

We’ll be working with our demographic team to explore correlations between the nantucket

real estate market and the Boston and new York Metro economies. But our preliminary conclu-

sion is that the Boston economy and Massachusetts buyers has more impact than Wall street.

whoDigging deep into Nantucket homebuyers

in thinking through who owns on nantucket we wanted to get beyond the basic assumptions of “July is for Bostonians and August is for

New Yorkers.” Who actually owns Nantucket’s 6,000 second homes? To find out we posed the question to two professional demographers. First,

they mapped the off-island address for nearly 6,000 homeowners. they mapped by census tract, a demographic neighborhood nearly twice as

precise as zip codes (73,000 census tracts versus 43,000 zip codes). Next, it involved the use of a k-means statistic to create four profiles of Nan-

tucket second homeowners.

“upwardly Mobile” 43% of the owners live in very high-value areas outside of city centers. These census tracts are in the 99.8th percentile

for income and 98.0th percentile for housing values. We can call this group “Upwardly Mobile” or even “One Percenters.” This group is in their

mid-forties on average and are the most likely to have children, with an average household size of 2.8. they are only half as likely to have graduate

degrees as the urbanites (described below), but more likely than either of the suburbanite categories.

“Young suburbanites” 26% of Nantucket second homeowners might be characterized as “Young Suburbanites.” They are the youngest

profile, at a median age of 35. They are much more likely than their urban counterparts to have children, and they live in areas with a much more

modest median income of $66,000. similarly, the average house is worth $300,000, which is not ostentatious for their locations.

“established suburbanites” At 23% of owners, this group is the oldest. They live in suburban neighborhoods with a median age of 50,

and have fewer children at home than Young Suburbanites. Their education profiles are very similar to the younger suburban group, with not

an over-abundance of graduate education; median income is higher, at $78,000; and their primary houses are worth about $20,000 more than

the Young suburbanites.

“urban Young families & singles” 7% of the owners live in densely urban areas with 100,000 people per square mile. They are

congregated inside Boston, New York City, Washington, DC (Capitol Hill area), Chicago, and San Francisco. Their median age is a young 38.

An average of $472,000 median housing value has them on the higher end of a national scale—in the 96th percentile. They have the smallest

household size, at an average of 1.8, and twice the number of graduate degrees as any other profile.

heat is on We combed through the data on Nantucket homes whose owners have an off-island resi dence. To see locations of those off-island homes, we employed Hot Maps and found the major concentraion of those homes is the Northeast; the Boston area in particular.

upwardly Mobile

Young suburbanites

established suburbanites

urban Young

families & singles

% of nantucket owners

Median age

household size

nantional percentile of house value

nantional percentile of income

43 26 23 7

45 35 50 38

2.8 2.3 2.3 1.8

98th 74th 77th 95th

99th 64th 77th 96th

nantional percentile of income

whenNearly a third of sales occur “off-season”

it’s a common question. When is the best time for nantucket real estate? there are all sorts of assumptions.

“it must be summer. that’s when everyone’s here.” But that leads to, “people are too busy in summer. Maybe it’s

fall, when it’s nice weather but quieter.” Then it’s, “For the buyer who delays in the fall, spring is the busy time.”

lots of questions. And we’ve got the answers. We started with a monthly analysis and charted every single-family

closing from 2013 through 2015. not surprising, the execution of purchase and sale (p&s) agreements mostly

happen between June and september.

But there are other ways to think about grouping the data. For any James Taylor and Carole King fan, a key line

shows the way: “Winter, spring, summer, or fall. All you have to do is call.” thinking seasonally is a valid way to or-

ganize the data. often, sellers will not list their house from november through March, and sellers who haven’t found

a buyer by early fall will often de-list their property until the spring. they inaccurately believe it’s the “slow” period

and that their listed property will get “stale.” We believe that’s a mistake. three key realities support this insight:

›› According to a joint study undertaken by Google and the national Association of Realtors, 90% of buyers

searched online for real estate. they don’t need a site visit to engage in the buying process, so not undertaking

robust, online marketing for the property you want to sell is a huge mistake.

›› The analysis of single-family home transactions on Nantucket in 2015 shows that 30%—almost a third—of all

sales go under agreement from november through March. Properties need to be listed during times when a

third of buyers are actively negotiating transactions. not marketing in the off-season is equivalent to pulling

your property off the market for the month of July, when 30% of sales also occur.

›› it’s impossible to predict when a buyer will buy. We have tracked p&s agreements for

years by month. And we can determine averages. But the reality is agreements are

reached every month on nantucket. it’s simply impossible to predict when and what

motivates a buyer to act during a certain period, so marketing continuously from

the initial listing to putting the property under agreement is the smartest strategy.

noveMBer surpriseMost Nantucket sales occur in summer. But not all sales.

fall23%

winter16%

summer35%

spring26%

howExploring homebuyer financing of purchases

in many mainland markets it’s typical to include a financing contingency as part of an offer to purchase.

But in Nantucket, especially with sales above $1 million, financing contingencies are uncommon. Consequently, it’s

difficult to know how properties are purchased—with all cash or with financing. And if the purchase is financed,

how much debt is typically used?

To gain insight we analyzed every Single Family Home (SFH) acquisition in 2015. We analyzed more than 300

public records representing $660 million in sales value, searching each transaction to understand whether debt was

used, and how much. We searched through the nantucket Assessor’s data, the Massachusetts land Records website,

and the nantucket land Bank records.

Let’s start with the basics. 38% of all 2015 SFH buyers purchased with no financing. Totaling $329 million, that

represented roughly 50% of total dollar volume. Not surprisingly, these all-cash buyers generally purchased the more

expensive properties of 2015, averaging $2.9 million.

So that leaves $331 million in acquisitions financed—62% of all dollar volume. These sales averaged $1.7 mil-

lion. And, not surprisingly, and as illustrated below, we found that lower-priced properties were purchased were the

highest amounts of leverage.

follow the MoneYThis chart shows the per-centage of leverage across price ranges. The higher the house price, the less leverage involved. 38% of sales are all cash, representing 50% of all Nantucket sales dollars.

80%

75%

70%

65%

60%

55%

50%$1MM$-2MM<$1MM $2MM-$5MM $5MM-$10MM >$10MM