Like the rest of the Manhattan real estate world, this column devoted significant coverage over the past couple of years to developments at the 15 Central Park West and the Plaza.  The two properties were full of promise and had been selling units at a brisk pace. 
 
It was more than just the media nexus of the New York apartment market and human beings' inherent fascination with the lifestyles of the rich and famous.  In fact, it was hard not to write about the apartments.  Sales from the two much sought-after buildings actually pushed the average value of New York condos up significantly. 
 
After all, many of the sales at the two buildings took place in the last quarter of 2008.  So, when many an interested reader turned to the end of the year quarterly reports to see where the New York City apartment market was headed, the top-line results were not what many feared - a significant drop-off in prices - but instead an actual increase in the average price of a New York apartment. 
 
All thanks to the super-high end Plaza and 15 Central Park West.  Oh how times have changed. 
 
Of the two units, the Plaza has suffered the most damage. 15 Central Park West has certainly taken a hit during the recent downturn, but in general it has weathered the storm almost as well as could reasonably be expected.  The Plaza, on the other hand, is an abject lesson in avoiding speculative bubbles. 
 
The developers were racked with allegations of playing off the name and fame of the building - even leading to a lawsuit by a Russian client that directly accused them of engaging in "bait and switch" tactics. 
 
While that suit - and the countersuit - were settled out of court, the bad publicity that stemmed from it and other complaints from some of New York's wealthiest real estate buyers led to a storm of bad media coverage. 
 
Many that bought units while the Plaza was all the rage have sold them for sizable losses - or at least have tried.  A number of stories have emerged of sellers taking hits of more $4 million or more - and that's to say nothing of the opportunity cost of all that money being tied up for so long. 
 
It will be interesting to see the developments at the Plaza.  As sellers get more desperate to unload eight digit investments gone bad, opportunities for truly incredible investment opportunities may open up. 
 
Whither goes the Plaza goes New York?  Not quite, but it's hard to see their property values moving in opposite directions for very long.
 

Most of the talk in New York real estate circles these days has centered on the national recession, the pain it has caused the NYC apartment market, and when it's all going to end.  The recent Deutche Bank report has fueled the debate, as have recent prognostications of a global recovery – most of latter having stemmed from perpetually overly-optimistic business writers. 

While the perennial debate between optimists and pessimists plays itself out in the context of shrinking real estate valuations, the form that the eventual recovery will take is becoming clear.  The eventual construction resulting from the wretched attacks of September 11th with aid a revitalized downtown New York real estate market.  Manhattan is typically the strongest part of the New York apartment market, and changes in commercial real estate supply and demand will, in the long run, make the downtown area even more attractive to businesses and their employees. 

A planned strengthening of public transport systems will also make the downtown area a more attractive place for businesses looking to headquarter themselves in New York City or relocate from other parts of the city. 

Similarly, the strengthening of residential neighborhoods near the downtown area that occurred during the previous expansion has attracted additional retail activity. 

In some ways, it seems like an odd argument:  In the downtown heart of business activity in the business capitol of the United States, additional business activity will help lead the Manhattan real estate market rebound more generally.  

There are four major factors, though, that have pointed some observers towards such a conclusion:  First, the reconstruction of areas that were damaged or destroyed during the terrorist acts of September 11th.  Second, the changed market dynamics of residential neighborhoods near to the downtown area.  Third, a resulting further rejuvenation of retail activity.  And fourth, an uptick in supply and concordant downturn in demand for commercial real estate that, over the long run, will make the downtown an especially attractive place for new or relocating businesses. 

The weak US dollar will similarly attract additional foreign demand for both the commercial and residential real estate market.  A disproportionate amount of that demand may end up being concentrated in the downtown area. 

It's not enough to fuel a recovery by itself – or even come close.  But what is clear is that when that recovery comes, look to downtown real estate and related neighborhoods to help lead the way.

Original Post: http://www.elikaassociates.com/blog/?p=110

The real estate market, in comparison to most markets, moves at a glacial pace. Housing and property are, after all, two of the most illiquid assets you can buy. That illiquidity makes sense: you can never move it; for most lots it’s hard to sell just part of it and keep the rest; holding it costs money; selling it costs money.

What keeps real estate looking so attractive to so many investors, however, are the potentially huge returns. All in all, though, the transaction costs are huge in any real estate market, and that keeps the market from responding as quickly as, say, stock or bond markets.

The glacial pace at which the national market moves is reflected in the Manhattan real estate market. In fact, mainly because the New York market dodged most of the direct effects of the subprime crisis, a significant lag has developed between its price movements and other major national markets.

Like most markets, the real estate markets follow certain patterns. Economic geographic patterns of the business cycle being one of the most predictable. Usually, when the market is dragged down by macroeconomic events – like the New York apartment market was – marginal neighborhoods are hit first, then middle class ones, and then towards the end of the downturn, those luxury markets most insulated from the economic cycle take a hit.

This might be overstating the pattern a bit. All of this happens pretty quickly, but sometimes there is a lag of one or two quarters. We saw this happen with the New York apartment market, as Harlem and other neighborhoods watched property values plummet, even as new condo sales were keeping at least the average price of the luxury market afloat for some time.

Witness, though, the cold hand of time. Two major aspects of the high-end luxury New York apartment market, the Hamptons and new Manhattan condo sales, are coming back down to earth. Sales in April of new Manhattan condos fell roughly 70% from last year’s figures. This number was in part powered by developers and lenders’ unwillingness to lower their prices, relative to other sellers.

The Hamptons, the fabled summer playground of the wealthiest of New Yorkers – I’ve always preferred Martha’s Vineyard, myself – many properties are now selling for less than two thirds of their initial property values.

These markets are still stronger than many others within the larger picture of NYC real estate. The global recession, though, has finally, literally reached home – driving down the property values of those New York financiers that caused it.

The economy is currently in free fall. Try as they might, optomistic commentators can no longer pin the bad news on market psychology. Just today, Harvard Professor Robert Barro was on CNBC and writing in the Wall Street Journal of a study he recently completed. It estimates a 20-30% chance of the recession becoming a depression.

A little while ago, the world’s two most famous traders, Warren Buffet and George Soros predicted diametrically opposed economic fates. Buffet said the bottom had been reached, Soros said it hadn’t. Today, Soros is wealthier than ever before and Buffet’s investment firm is currently under seige from the traders on Wall Street.

Citigroup is almost a pennystock.

If you are yearning for good news: In terms of the free fall itself, it is hard to envision it becoming more rapid: the economy is already shedding jobs almost as fast as it can, given the current structure of the national labor market.

During the past two quarters, this macroeconomic malaise has finally caught up to the New York City real estate market. With the two so entangled, the story of the national economy and the New York apartment market has converged for the time being.

The real question seems to become when are we at the bottom? The middle of 2009 is the most optimistic of predictions, with the end of the year seeming to be the most likely point for national economic growth to again become positive.

Similar predictions are being made about the New York City real estate market. What is clear right now is that the bottom is not here yet. However, that bottom will likely be at some point in the next four quarters.

In the financial chaos of the current times, it is easy to lose sight of the long term opportunities brought on by such loss and volatility. The Manhattan apartment market is declining in value and will continue to decline. Long before it stops, however, it will fall past the point of its typical market value.

The expression is not buy at the bottom, sell high. It’s buy low, sell high. The reason is because it’s impossible to find the exact bottom without a whole lot of luck. Buying low, however, is something that can actually be done. For the next couple quarters of 2009, the New York city real estate market will certainly be at its low.

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Press Release - Feburary 24th, 2009

Mortgage Rates – Perhaps the most important variable, mortgage rates have dropped dramatically from their highs several months back. With still-President Bush requesting the second half of the TARP funds, credit markets should continue to thaw over the rest of the year. Average rates for thirty year mortgages in Manhattan apartments are currently below six percent – 5.875%, to be exact.

Original Post: Elika Blog

Prices are declining throughout New York City, but certain neighborhoods are being hit harder than others.
It is usually the case that changing and marginal neighborhoods are hit hardest by slowdowns.  Despite this entire recession being caused by those on Wall Street, this time is no different from most.

Harlem is already feeling the pinch more than any other part of the New York City real estate market, save for Morningside Heights, which dropped 30%.  Residential property values in Harlem and East Harlem combined are down a full 20% from last year’s numbers.

Midtown East and Turtle Bay were runners up.  Values there dropped an average of 18.6%.  Hell’s Kitchen last quarter lost 8% of its real estate value from last year.

Median co-op prices in Lincoln square, meanwhile, rose 18.6%.  Similarly, the rich don’t seem too effected by the downturn caused by the financial industry, with Fifth Avenue and Park Avenue seeing average rises in residential property values of 35% from last year’s third quarter.

Outside these areas, losses were more moderate.  The Lower East Side and the Village each lost 5.5% of their residential real estate value.

No other neighborhoods saw declines greater than 5%.  Some areas even saw significant price increases.  Battery City Park, for instance, saw median prices rise a full 6.5%.  Inwood saw the single greatest increase, despite a sharp decline in the number of sales.  Prices there shot up 17.1%.  Most of these increases in value came from new high-end condos finally coming onto the market.  Greenwich Village saw a 3.9% increase.

Prices dropped in SoHo and TriBeCa, but sales volume remained quite strong.  The Upper West Side, on the other hand, saw a drop of over 30% in its sales volume.  In total, sales volume dropped 24% in Manhattan.

What’s scary, though, is that next quarter is widely expected to be even worse than this quarter.  The real damage to the economy has been done by consumer reaction to the financial crisis.  Many potential buyers have put their purchases on hold to see what happens with the macroeconomy, thus driving prices down even further.

Much of this correction will be, in the long run, good for the New York City real estate market.  Many experts have long argued that prices in the city were heavily inflated in comparison to similar urban environments.

One of the most striking features of the new market dynamics is the shift in demand:  Buyers have refocused their energies on more moderately priced units.  While the highest end of the luxury market is still the healthiest market segment, many buyers who had been looking at comparatively low-end luxury are now moving into more reasonably-prices high end standard units.

Similarly, the average size of an apartment sold in Harlem dropped roughly 300 square feet from the last quarter.

It is clear that owners that reacted quickly to the downturn have not seen much slack in demand for units.  Not all owners, however, have been so nimble.  Much of the expected price drop in the fourth quarter, for instance, will be from landlords who finally get it that the real estate market in NYC is once again behaving like a normal market, not the fantastical profit machine it’s been for most of the past decade.

The effect of the election on the market will be one of the most fascinating questions in the industry that will be answered over the course of the next several weeks.

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With the seemingly all-consuming election finally over, the real estate industry is turning its attention again to the country’s major markets. The epicenter of the national market is, once again, New York City. The financial debacles of the past economic era have ushered in a new set of conundrums for investors, and the city’s market resembles the national market, yet with important factors considerably more poignant.

The positives in the New York City real estate market are much more positive than most of the rest of the country, but the negatives are also more negative. The financial crunch has hit the city like everywhere else, but has also threatened the city’s jobs sector, as numerous NYC-based investment firms have either consolidated or folded completely. The long-term demand for apartments, on the other hand, remains high from a historical perspective.

While the gentrification of many neighborhoods will presumably stall over the next several years, there is little to no likelihood that New York City’s situation will return to what it was during the late 1970s. That being said, hipsters that recently bought condos close to Morrisey might be in for a little disappointment about the direction their neighborhood takes over the next several years.

Queens in particular seems like its rough patch will only get worse during the coming several quarters. Apartments on the market have increased dramatically, both in terms of year-on-year numbers and in comparison to the previous month. The figures were +33.8% and +14.4%, respectively.

These are especially negative numbers. It is likely the near future will see a significant reduction in the average prices of many neighborhoods, even if the luxury market remains functional and even-keeled. One sign of relief has been the stalling of the US dollar’s recent rapid climb. If the absolute ceiling to the dollar’s value is somewhere around $1.30 per euro, than the city has little to fear in terms of losing the strong stimulus that a weak dollar provides to the real estate market here.

While the worst is yet to come in terms of the macroeconomic data, the downturn of the recent downturn in the New York City real estate market is probably more severe than it will be during the rest of the year: Credit markets froze for a considerable length of time, and it was hard for anyone to get reasonable conditions on their mortgage loans, if they even had access to quality credit in the first place.

The sector of the market that is most likely to get hit hard are landlords with units that are not an A or A+ in their overall quality. Owners that think they still have a strong hand to play in terms of negotiating sales details are in for a very rude awakening. Most buyers are still actively looking, but feel perfectly content to rent for another year. This being New York City, though, that might be a good thing. It’s about time the buyers had a powerful hand to play.

Original Blog Post

With stocks crashing, then posting their largest rally since the early days of the Great Depression, than crashing again, it’s clear New York City’s housing market is going to feel at least some of the turmoil.

The market was already retreating from a buyer-seller détente into a full-blown buyer’s market before the calamities that followed Lehman Brother’s collapse. As the stock market has dived and news from the national economy has been truly horrible, though, buyers have become more aggressive.

There are reports of buyers making half a dozen low-ball offers in order to try to capitalize on nervous sellers who are now perhaps regretting spending the summer over-confidently rejecting offers of a more reasonable nature.

That type of strategy, of course, is common in all real estate markets that are in transition. The more dramatic sign of the turmoil facing the New York City real estate market right now, however, is the terms being offered to brokers. Some property managers have upped the typical commissions being paid to real estate brokers who make sales happen.

The New York Times reported on perhaps the most striking example of this new trend: Prudential Douglas Elliman is recommending its sellers increase commissions for buyer’s brokers from 3 to 5 percent. While not all sellers are following this path, certainly the actions of one of New York’s most prestigious real estate companies is a sign of the times.

With many buyers waiting on the sidelines, waiting for the turmoil in the financial markets to settle itself, a number of deals abound. Right now seems to be the time when sellers are transitioning from added perks – free storage, free parking or the such – to significant cuts in the actual asking price.

That being said, many landlords are still unwilling to reduce prices directly, but instead have opted for backdoor discounts like reduced transfer taxes, delays in fees and other such de facto cost-reduction measures. Many owners in Manhattan are only now just starting to seriously re-evaluate their pricing schemes. Many landlords in Queens and Brooklyn, however, are starting to feel a certain sense of desperation to sell their new condo developments and older apartment units.

Builders at the early stages of large projects are becoming especially worried about the prospects of following through with their projects. Demand is still strong for the newest apartment buildings and condos, but investors have become increasingly wary of risking money on a market on which few can offer many meaningfully confident medium-term predictions.

Posted at: Elika Real Estate Blog