The biggest problems in New York City real estate
In the wake of the subprime and credit crises, problems are becoming apparent even in New York City’s usually buoyant real estate market. Although real estate in New York City has escaped some of the ravages the rest of the country has suffered, cracks in the façade are starting to show.
For this supplement, The Real Deal has chosen to bring some plaster: First, we home in on macro difficulties, as well as some less-discussed problems. We then weigh in with the advice of experts on ways to solve these issues.
We take a look at the problem of the liquidity crisis. In the article Crisis or Correction, financial whizzes contemplate how they think the financial markets can ultimately return to a state of normalcy. For example, experts say the only way for the broader housing market to recover is by restoring confidence in lenders’ processes to securitize their mortgages.
At the heart of the matter is the role of independent appraisers. Without appraisers capable of standing up to pressure from mortgage brokers to price unrealistically, it will be hard to restore confidence. Insiders consider how to make this happen in Restoring credibility to appraisers.
Besides impacting banks and their ability to make informed investments, the present crisis is triggering fear among homeowners that they may lose their homes. In How New Yorkers spell foreclosure relief, we probe what’s being done to control the growing number of foreclosures — and experts share their views on whether the present actions are sufficient.
In addition to these sweeping problems, the city’s real estate industry is facing some more local conundrums. One lingering difficulty is the manner in which different real estate firms arrive at different outcomes in their market reports. In Making sense of market reports, analysts reflect on whether the city needs a comparison-providing multiple listing service. Another growing difficulty emanates from spiraling energy costs, and the responses of commercial landlords to those costs. When it comes to energy costs, landlords over a barrel shows that many are turning to alternative energy sources and long-term fixed contracts as solutions.
Finally, no problem has had a more tragic impact and received more recent coverage than accidents at construction sites stemming from crane malfunctions. In Shoring up construction safety, we review suggestions for reforming the city’s Department of Buildings and creating a culture of safety and accountability.
Two other stories discuss the mysterious flexibility of offices’ floor area over time and the new wave of scrutiny shoddy developers could soon see from the Attorney General’s office and the Department of Buildings.
This countries economic crises and the government “recovery” plan (aka. the bailout) has rocked Wall Street this month and will undoubtedly affect NYC’s residential real estate market. As banks continue to fail and confidence continues to waiver, real estate in NYC remains as good an investemnt option as any for those who deposit more than the $100,000 limit in FDIC insured banks. Real Estate remains a great way to preserve money over time.
There are some great examples of this over time. During the most severe recession post WW2 (1975 to 1981) Markets slowed dow with interest rates reaching highs of 18% and declining home values of close to 30%. The market rebounded nicely during the 1980’s with home prices rebounded by as much as 400% and interest rates declined to around 8%. The best way to preserve money over time and hedge against inflation remains Real Estate. Again after the attacks of 9/11 real estate declined slightly (10%-15%) in Lower Manhattan yet over the past 7 years those who bought in Lower Manhattan neighborhoods (FiDi, TriBeCa, Battery Park) have seen their investments triple in value.
Developers say that their new buildings are still selling out, if somewhat slower than in the past. (One that didn’t, the Velocity, suffered from construction delays and questions about its site near city housing projects, and switched to a rental building late last year.)
The Web service Streeteasy.com reports that waterfront properties continue to command premium prices about 30 to 35 percent above those on Hoboken’s west side, a former industrial area that was nearly unimaginable as a neighborhood only five or six years ago.
But development on the west side is continuing, fueled by interest from buyers and renters, developers say.
The Tarragon Corporation is completing its sixth residential building in the neighborhood at its eight-square-block Upper Grand development. The company now has four condominiums and two rental buildings there, and will soon break ground on the west side’s first high-rise condo.
William Rosato, Tarragon’s president, acknowledges that the market on the west side has cooled over the last two years. “It used to be that if we asked $500,000 for a condo, five buyers were standing in line to buy,” he said. “Now, if you ask $500,000, people wait to come in and begin a negotiation.”
Nevertheless, Mr. Rosato added, “Prices are holding pretty strong, as is the pace at which we sell.”
Benjamin D. Jogodnik, a vice president of Toll Brothers who runs its City Living division, said the company had sold more than 400 high-end condominiums at three Hoboken developments since late 2005, when the statewide residential market began to deflate.
There are only a handful of units left at one of those developments, Harborside Lofts, a 116-unit building with balconies and rooftop terraces. The terraces were sold separately, at prices that reached $225,000.
Mr. Jogodnik said the second buildings at both the Hudson Tea and Maxwell Place complexes are approaching completion. Both developments have had steady sales, with Maxwell Place now about 95 percent sold.
Toll Brothers is also building 10 “maisonette” town houses at Maxwell Place. The town houses have the Hudson River outside their doors, and lots of glass facing the view.
The town houses are priced about $1 million above other high-end apartments in Hoboken. The asking prices range from $2.5 million to $3.8 million, for houses that range from 2,300 to 3,800 square feet of space.
No marketing has been done since the town houses became available last fall, and work on the pier outside the windows still obstructs the view of the river from most of the unfinished condos.
“But we have sold four,” said Mr. Jogodnik. “Four in six months, at these kinds of price points, in this market? I’m O.K. with that.”
Bargaining is taking place at all price points for condos old and new, according to statistics from Streeteasy.com. While the average price of a two-bedroom apartment in Hoboken has increased 9.4 percent since the beginning of the year — to $634,917 — more than half of the two-bedrooms currently on the market have had their original asking prices reduced, by an average of 5.3 percent.
Meanwhile, the average price for a one-bedroom unit has dropped 9.3 percent since January — to $420,797 — and 40 percent of those units now on the market have had their asking prices reduced, by an average of 3.3 percent.
There are relatively few three-bedroom units in Hoboken, most of them penthouses, but the average price is up by 3.3 percent, Streeteasy.com reported, to $882,943.
More of the negotiating is occurring on the west side than on the waterfront, Streeteasy.com indicated. About 88 percent of the two-bedroom units listed on the inland side have reduced prices, taken down by an average 7.4 percent.
Still, new high-end developments keep springing up.
The Vesta Group, a developer of boutique condo buildings in TriBeCa and Chelsea in Manhattan, has just begun marketing a 16-unit project on Observer Highway on Hoboken’s south side.
Vesta is promoting the building as Hoboken’s first with video doorman technology, which allows deliveries of groceries and packages while the apartment dweller is out. Vesta is selling two- to four-bedroom units for $690,000 to $1.47 million.
Marketers of this building and others are stressing Hoboken’s walkability, and the fact that schools, shops and retailing are close at hand.
There is one residential amenity that Hoboken has been conspicuously lacking, however, ever since the last movie theater closed in 2005.
But last week, Tarragon, in partnership with Clearview Cinemas, broke ground on a five-screen theater.
Recent Celebrity Listing Activity
sold for $1,200,000
2br / 2ba 762 sqft
sold for $77,500,000
sold for $732,000
sold for $2,360,000
3br / 1ba 2,166 sqft
7br / 8ba
5br / 6ba
3 br / 3.5 ba 3,024 sqf
April 13, 2008
By JOSH BARBANEL
REPORTS of a decline of the Manhattan real estate market may have been premature.
Since the release of first-quarter sales results on April Fool’s Day, brokers have been ruminating on the extent of a slowdown in the property market. One report prepared for Prudential Douglas Elliman by Jonathan J. Miller, an appraiser, showed a 34 percent drop in quarterly sales, compared with the corresponding period in 2007, the steepest decline in sales in memory.
This finding, however, was called into question by higher sales figures recorded by other brokerage firms. And even one of Elliman’s top-selling brokers, Dolly Lenz, said in an e-mail message to fellow brokers, “Something is very wrong somewhere and I need a plausible response, as will we all.”
In a later e-mail message to a reporter, she said that despite some stress “here and there due to overbuilding,” the “market is really quite good over all.”
Last Wednesday, Gregory Heym, the chief economist for Halstead Property and Brown Harris Stevens, sent an e-mail message of his own to brokers at those firms. He said that while each company’s sales figures were only estimates, the Douglas Elliman report was incorrect and “missing almost 600 sales, which were available for anyone to view” in the city’s online records.
Mr. Miller, the president of Miller Samuel Inc., said he used the same methodology that he has been using for 14 years, based on a variety of public and proprietary sources, and that differences in firms’ reports could be caused by the timing of data collection. “I stand by my numbers and the methodology used to compile them,” he said.
Because there is often a lag of several weeks in reports of property closings, each firm tries to capture closings filed in public records up to a few days before the end of the quarter, as well as additional reports of closings from managing agents and other sources.
But a review of closing documents filed by last Wednesday, nine days after the end of the quarter, showed that the number of sales was roughly flat compared with the same quarter a year ago. They fell, but by less than 1 percent, or a decline of 11 sales out of nearly 3,500 sales reported in April 2007.
Last spring, the number of closings rose to record levels, but with contract signings lagging lately and uncertainty on Wall Street, few brokers are predicting a similar surge this spring. Yet who would have thought that Manhattan apartment prices would hit record highs in the first quarter, while prices fell across the country?
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