As I write this, Zuccotti Park is getting powerwashed.
This evening, we should see a fairly strong rainstorm doing the rest of the job, while also
sadly sweeping away some of our beautiful yellow, red and orange Autumn leaves across town.
Power-Washing
By tomorrow and the weekend, will Occupy Wall Street seem like a dream?
No Real Estate professional can deny the connection between New York City Real Estate and Wall Street that now exists.
I would also argue a nearly-as-obvious point that the city’s
financial health is connected to Wall Street, though
may
be slightly less unanimity
on this point.
Real Estate Tax comprises an ever-growing percentage of the operating budget for the city, witnessed by a tripling of Real Estate Property Tax over the last ten years or so.
Also, the transfer taxes which the city (and state) charge on a per-transaction basis, whether a cooperative or condominium unit (or building is sold), are
likely keeping New York afloat- not to mention the income taxes collected for the highest earners doing the same.
Therefore, as much as one may support Occupy Wall Street or hail its demise,
without Wall Street and its employees, New York City would almost surely have a fiscal crisis not seen since the
1970’s.
I do not think
the city
should rely on any one industry for its financial health, but
without too much
digging, it is easy to see
we are there.
Brown Harris Stevens’
October 2011 Report, prepared by our chief economist Greg Heym, points out some good news.
First, there was a net increase of 31,400 jobs year over year since September 2010, reducing unemployment by approximately 1%.
However, this good news is paired with news that 5800 jobs were lost in the construction sector.
Let’s start the discussion with the
construction sector.
2011 has been a year in which investors
have clamored for Manhattan development opportunities- and I would argue that regardless of the broader market concerns, we will see construction increase massively in 2012 and 2013, for two reasons.
First, the buying in this calendar year cannot instantly translate into construction.
There is a lag.
The huge uptick in construction permits this year compared with 2009 means that construction jobs will begin popping up, and already have done so.
What I would characterize as a buying spree for investors looking to improve existing properties or build new condominiums projects will almost certainly continue in prime areas.
Buyers are preparing to see their projects to fruition with deeper pockets, more challenging lender underwriting, and more detailed, more conservative pro formas to see them through.
Second,
I wrote a little bit about this last month- but the absorption of new inventory in Brooklyn and in many projects in Manhattan has finally reached the tipping point in most buildings.
These were buildings begun in 2005, 2006, and 2007.
The value buyers will continue to seek out and push these buildings to sellouts.
Developers will soon celebrate seeing projects through a very difficult downturn.
- It’s not what you think
However, for those buyers who seek the newest,
properties built more recently with newer finishes will hold more appeal, even at slightly higher
premiums.
Many new properties in good-but-not-great locations are achieving $1100-1300 per square foot, fairly easily.
Anything with views will easily start at the top end of that range, and move well into the $2000/square foot area for great locations.
This is not a new bubble in my opinion.
These buyers are not speculators, by and large.
They are holders, investors who will take the 2-4% returns on holding these as rental properties, or use them for personal enjoyment.
Most foreign investors are purchasing in cash, which will carry many new condominiums over the 15% threshold to be officially approved.
This is helping keep the Real Estate market strong.
With US buyers, the perception of a lack of financing has some merit, but I have seen lenders providing financing for
all buyers I am working with- at
lease those
who seek it.
Foreign buyers without US income will of course have had underwriting issues, and buyers with less-than-perfect credit with have had problems.
Certainly, all buyers can expect a minimum of 20% downpayment requirements, usually 25-30%.
A quick story to illustrate.
A fellow colleague who sold an $11mm apartment listing on the Upper East Side.
The buyer requested and was finally permitted to take out a $5 million loan.
Their argument?
The money was cheap, they could afford to carry the mortgage, and why not take advantage of keeping the rest of their money in the buyer’s hedge fund?
Hard to argue- as long as his fund keeps performing.
Back to absorption rate of new condos,
of which there is a real lack of
inventory in Manhattan, good new construction is getting sold relatively quickly (absorbed).
(QUICK UPDATE: Toll Brothers article posted 11/15 in the afternoon in Crain’s) Large, renovated cooperative apartments function in the same way in areas with
a massive lack of condominium product, such as the Upper East Side and Upper West Side.
I will not say the same for unrenovated apartments.
Condominium projects such as the Laureate and Touraine are incredibly popular and have sold shockingly
fast.
More trophy properties such as 15 Central Park resales and 157 w 57th (One Fifty Seven) will likely
continue to break new records.
Last week, there was some disagreement on this point from my colleagues.
One broker at my old firm Corcoran argues that we’ve hit a new high and will not see things trading above that high.
But we said
the same thing about $1000 per square foot in 2006, and now $2000 per square foot even today is not a shock.
$10,000 per square foot or more is not even breaking records anymore.
I respectfully disagree.
Perhaps there will be a small pause at the high end as the rest of the market plays catch up.
But it will only be a matter of degree.
The very high end is its own market.
Surely, we all like to look at and read
about $88mm penthouses.
I’ll
spend the next post a bit
more
focused on the bread-and-butter, run-of-the-mill, Manhattan mundane- the $500k-$3mm price range.
One bedrooms to 3-4 bedrooms.
We will likely see volume continue in similar patterns from neighborhood to neighborhood.
The market is not schizophrenic anymore.
It seems to be in pretty distinct patterns.
I’ll touch more on this and will address jobs and more specific market thoughts in a separate post.
Thanks,
Scott