There has been an awful lot of noise about the
Real Estate market in New York in the past few weeks.
Is it hot?
Is it cooling?
Reporters cite plans for one Central Park South being put on hold as conclusion-worthy news.
Can we really extrapolate from that to the whole market?
What does the Sweet Meteor O’Death have to say?
The $10mm-and-Up Luxury Market
Very recently I was
having a market conversation with a seasoned developer whose opinion I respect.
“Do you know there were only 114 sales in 2015 over $10mm?” he said to me.
“Out of more than 11,000 total sales in New York City.
Yet, all the press wants to write about is the market for what’s less than 1% of all the sales!”
I pressed him for more and he continued.
“Scott, the ‘market’ over Ten Million doesn’t really exist.
It never really exists!
It’s so thin, always, and is completely unrepresentative of the greater market. Are there too many of them being built?
But the bigger story isn’t about that segment of the market.
The story of the market is the massive demand for everything else.”
Interesting thoughts to consider.
I agree with them.
Certainly, I enjoy reading about the engineering marvels and the cheap financing of these big projects through arcane visa projects like EB-5.
But there is a total disconnect between this news and where housing is generally.
I probably have
been watching The Martian a little bit too much since it came out on video a few weeks ago, and I started tying this conversation and the movie in my mind.
In the movie, Matt Damon’s character Mark Watney plans to take advantage of the thin atmosphere of Mars to escape to safety.
Where are you going with this metaphor, Scott?
Well, the market is Watney’s rocket, and the luxury market is the thin atmosphere of Mars.
The market has continued to zoom through the air, and the luxury market is ethereal.
It is not the power propelling the market, and I would encourage you to navigate your ship through that noise, whether the news is about a really strong luxury sale, or a slowdown in those sales.
They are simply anecdotal.
If a must-have fabulous apartment comes to market at 740 Park or elsewhere, you can bet your beans that it will make for a great story, and a high price.
Essentially independent of the rest of the housing market.
I’m having fun with this metaphor, as you can tell.
2016 Prices, 2016 Mortgage Rates
I keep banging the drum about this, but it does look to be accurate.
We’re seeing price reductions on overpriced units overhanging from 2015, and sellers finally may have
gotten the memo that they need to be far more in touch with the market.
What does this mean for you, the $1-5mm buyer?
Prices should flatten a bit in Manhattan in 2016 from 2015 numbers.
This is quite an opportunity for buyers, in my view.
They should have time to understand the market and to take advantage of mortgage rates, which
also don’t seem to be going anywhere, anytime soon.
Further, sellers! Don’t be sad.
If you are thinking about selling, you have just witnessed
five years of straight double digit gains!
Take your gains and head for the hills.
Or if you’re trying to upsize or downsize, this market, being a bit more static, gives you a better opportunity to make the move without risk of prices jumping on you on the buy side.
Some advice if you’re thinking about buying: you may want to have some assets in cash and out of the stock market while you’re shopping.
The stock market is quite volatile at the moment, if you haven’t noticed.
No one wants an entire portfolio to drop 25%, risking
the liquidity required for a chosen
The only wrinkle here, which could push prices up a bit, is the lack of inventory.
If you look for West Village coops or condos from $1mm-$3.5mm, you will see a grand total of 17 (as of this writing).
That doesn’t even begin to satisfy demand.
Rental Prices 2016
It would seem that if anything takes a dip in 2016, it may be rental prices.
The inflow of rental inventory certainly should
spell lower overall rental averages.
If sales prices stay flat, and more buyers take advantage of this year to make purchases than in 2014 and 2015, then we should see additional downward pressure on rental units.
Of course, looking at flat-to-down rental numbers also could
put downward pressure on prices investors are willing to pay for investment condo units they will rent out.
I would not rule that out, but again, the safety of the investment
put such downward pressure on the returns that investors are willing to accept.
“Satisfactory returns” certainly are
in the eye of the beholder, and global weakness makes NYC look so exciting by comparison.
To be continued.
A Troubling Trend
I’m seeing some bizarre behavior by coop boards.
Clearly, boards have a fiduciary responsibility to ensure good shareholders
who will pay their maintenance.
They also want to make sure that their rules don’t make the buyer pool for available units too small.
As such, it’s a delight to see buildings like the River House loosen their strict policies, or other buildings allow 50% financing when they only allowed all-cash purchases before.
There is some concern, though, when boards get overly strict about things like washer/dryers or pied-a-terre use.
With washer/dryers, there is a ton of evidence that allowing
raises sale prices significantly.
Why wouldn’t boards explore ways to make this possible, instead of being obstructionist?
In large apartments, the price differential could be as high as 10%, with the w/d being the ONLY factor.
Pied-a-terre use is another issue.
Provided qualified buyers come to the table, there is little risk in most neighborhoods that buildings will become too concentrated with pied-a-terre use.
That is, a building won’t become a ghost town.
If a buyer wants to pay a record price, and not use the services of the building all the time, I have trouble seeing why part-time residents would be shunned.
The “community” of a building is evolving in any building.
I’ve found that such
rules often force many buyers to be less than forthright about their plans.
If boards expect to have a qualified buyer pool available to pay record prices for apartments, they ultimately will
need to reconsidering many of the rules they’ve had in place.
Getting stricter probably is
not the answer.
And while some argue
leniency a slippery slope toward damaging a building’s reputation, I would argue that bar to entry for great cooperatives is quite high enough to ensure quality shareholders.
This ruling by the SEC to track
apartment sales over $3mm is pretty absurd.
This is a lot of work for what is guaranteed to be a VERY low return.
The individuals behind LLC’s generally
purchase through them
for tax and privacy purposes.
People who are up to no good will
find a way to put a straw man as the buyer of record, anyway.
Hopefully, these six months will pass and display
the silliness of this plan.
At least the rule does not require buyers’ identities to be made public, which would
impact the market negatively.
Brown Harris Stevens 2015 Numbers
We just had our Annual Meeting, where the firm celebrates its successes.
The information is still coming in, but some of the topline numbers you may want to know:
- The firm sold $4.1mm of NYC real estate in 2015.
- The average agent sold $11mm of property (the math: 372 full time agents).
- The average sale price in Manhattan for our listings? $2.8mm. This reflects the strength of the work we’re doing across all price points.
- We sold 50% of the top 30 sales in 2015.
- 33% of our listings were sold in-house.
This to me is the strongest statistic, year in and year out.
It’s a huge testament to the work with do with both buyers and sellers.
- We still hold the records for the top 2 highest prices condo sales in the history of NYC Real Estate.
- 2015 was the firm’s 3rd best year!
- BHS acquired Zilbert in Miami – a terrific boutique brokerage worth knowing about!
Brooklyn shows no signs of cooling off.
Perhaps fewer bidding wars are happening in Manhattan, but not so in Brooklyn.
Little inventory, record prices, and massive demand.
If you zoom out to Bed-Stuy or Bushwick, there may
be some flattening of townhouse prices, but this is only because the numbers no longer make sense for investors.
Primary buyers still
are seeing great value.
Before we wrap things up, and to continue on this theme of Mars,
RIP David Bowie.
Did you know that he had two differently colored eyes?
He wrote great songs that were relatively easy to play on guitar – and since
he was a baritone, all the songs were in my vocal range.
I’ll say thanks to Ziggy Stardust for his music and flamboyant gifts to the world.
More in February – Scott