Zootopia
My kids saw Zootopia recently, and so rabbits and sloths (and other animals) are on my mind.
The trailer is particularly great, featuring a rabbit and a fox at the NY State DMV.
I mean, a fictionalized DMV full of sloths.
So let’s start there:
Buyers seem these days to be of one of two mindsets.
Either they are sloths, or they are rabbits.
What I mean is that either they have NO sense of urgency, or they are pants on fire, bidding on everything.
The Rabbit Camp
Plenty of buyers are feeling the pressure to buy now, while rates are low.
Where has this seemed to be most the case?
Uptown, on both sides of Central Park, for anyone looking to buy under $3mm.
I’m still seeing many, many bidding wars on the East Side, West Side, and Harlem.
Whether it’s 1-bedrooms or 4-bedrooms, inventory remains very low.
What’s driving this?
Perhaps that NYC has
added more jobs in a two-year period (2014-2015) than it ever has, EVER.
We’ve covered low rates and their impact, plenty.
Also, condominiums under $3mm still are being targeted by investors.
So you have a broad swath of buyers very interested in buying, right now.
Rush rush rush.
Brooklyn remains red hot, too.
The Upper West Side inventory remains extremely low, and generally it’s low all around (except at the high end).
How has this impacted the market?
First, bidders are getting cold feet after winning bids.
This creates quite a challenge for sellers and their agents, when sellers get a particular number in their heads well over the listing price.
Second, if a property is overpriced, buyers have been conditioned to avoid bidding altogether if the price is out of line, because of what they hear about bidding wars.
This certainly would kill momentum for a listing.
Of course, I would encourage a buyer to bid where they feel there is value, but this can be harder in practice than in principle.
Third, this frenzy makes for a hard market for anyone but the most qualified.
Open houses are packed, but when buyers really are stretching at times to make purchases, the buyer fatigue that I’ve referenced in the past easily can settle in.
We’re too early to see that happening in this new Spring market, but by mid-May, we’ll see some of that.
The Sloth Camp
On the other side, we have the sloths.
Of COURSE I’m being melodramatic, but the urgent frenzy as I mention above almost is completely lacking over the the $5mm mark.
Buyers are taking their time, and once you approach $10mm, deals really have Slowed…..To……A……Crawl.
This deliberation isn’t necessary a sign that the end is near, but seller expectations should be tempered accordingly.
New development, particularly, has been hit above $10mm, and while some sales offices report lots of traffic, signed contracts in the 1st quarter report, due out in a week, should show slowdown of new development.
Slower than Sloths
In the best of circumstances, building a building takes time.
Buying up contiguous buildings in competitive situations or hot locations, assembling air rights, planning the building, getting construction and debt financing, keeping investors happy – all of this before you go to market with condos or marketing units for sale.
And – we’re in NYC.
Add in community board review, landmarks review, privately created boards that fight developers building based on current zoning and bringing in the City Council, and you will see real delays.
Let’s go a step further, with delays that make us scratch our head, like the fights against affordable housing by people who want to keep their parking.
I heard from one builder of affordable housing that he has 68,000 applications for 200 apartments.
Come on, people.
Let them build this stuff!
Another sad tale:
wonderful landmarked buildings whose
owners don’t have the money to maintain them – and they essentially fall apart.
I can’t even mention the time it takes to find tenants for some retail spaces.
Babies are cute, even baby sloths
It’s remarkable that anything gets built, either for-profit luxury housing or affordable housing.
Is it any wonder that when there’s a chance to build in a non-neighborhood like Hudson Yards and create something from scratch, all with the city’s explicit approval to do so, developers are falling all over themselves?
A Popular Article
A Bloomberg Article was sent to me quite a few times, both by concerned investors and excited renters.
The gist is that condo prices have been driven up, often by the safety of New York Real Estate, along with the promise of very high rents.
When 2% looks like a reasonable return to an investor, it doesn’t take much to go wrong to really make things go sideways.
And when a renter is choosing between a brand new rental building
or renting a condo from an owner, rental buildings can turn things around right away, and can offer incentives to a renter like free rent or subsidized commission to rental brokers.
There is an inherent disadvantage to the single-unit landlord.
The approval process generally is cumbersome, the fees often too high, the timeline too long, and the landlords often unrealistic about prices.
With a few exceptions of really special buildings at the high end, these unit should fetch lower rents.
Do I agree with the article?
Yes, but only in the sense that it’s so obvious.
As so much rental inventory comes on the market, of course
rents are going to fall!
That will impact condos mostly in relation to rental buildings.
In short, the rental market is very efficient.
But condo investors should enter eyes wide open and assume a conservative rental return.
The Fitzroy vs. the William Beaver House
New Development launches are slightly less frequent right now.
So I have to share a story with you instead of a party this month.
Let’s start with this – I am cursed with a memory.
Heck, I studied the History of Memory in a really terrific sociology course my senior year of college.
What did we learn?
First, that people’s stories of an event change over time, and that different people at the same event remember it wildly differently.
The Fitzroy – 514 West 24th Street in Chelsea
These are the types of studies and classes that generate the often intuitive answers: in this case, the average person simply slaps his forehead and says, “This is a study?”
But I digress.
I remember quite vividly the 2007 launch party of the William Beaver House, in the Financial District.
To much fanfare, throngs of agents piled into the event space later made famous for its appearance in Inside Man, a terrific Spike Lee movie (aka joint).
How to describe the party?
It was a bacchanal, absolute mayhem in perfect Andre Balasz style, with go-go dancers go-go-ing from pillars, pass-arounds, major drinks, the works.
I recall that a colleague got fired after getting in a fight at that party.
Yes, not the smartest guy.
But what kind of real estate party gets that wild, anyway??
Fast forward to 2016.
And another Balasz-related event, this time at his Standard Hotel in Meatpacking.
The Fitzroy, instead of boring sales office broker events, decided to throw a massive blowout in the rooftop bar.
I didn’t realize what I was walking into, and while the Brass Band certainly was a ball to listen to, and the pass-arounds were delightful, I’m uncertain how a developer measures exactly the return on the investment.
I still can’t tell you that much about the project, except that it has a lovely model, which was on display.
And that Roman & Williams is doing interiors, which look lovely in photos.
I couldn’t help but have major flashbacks to those 2007 go-go dancers.
And take note that history usually repeats itself, every so often.
Wrap-Up
I hope to have more new development to discuss next month, and more market updates!
In the meantime, mortgage rates are dropping a bit even
The stock market had a decent month but ended flat.
The 2nd phase of the 2nd Avenue subway (to 125th Street) got some funding! More next month!
– Scott