It’s Almost Spring
We’ve spoken about the momentary bump in the road, the uncertainty surrounding the last gasps of the pandemic. We have midtown buildings which are being repurposed, such as this new campus for Touro College being announced. Two years into the pandemic, there is plenty of focus on the future of Midtown. While some wonder if it will become any more residential, it seems no question that it will return. As it was, commercial sales in 2021 were still quite strong, perhaps everywhere other than in New York. There is already plenty of belief here that that market will be just fine, that between innovative uses and good-old-fashioned office use, it will come back.
In New York City, though, there is still enough concern about our residential market not being discussed. We also had a killer 2021 (look at our latest quarterly report here), but what is happening in some neighborhoods around the city? Where is new inventory going to come from? Will we see enough inventory to satisfy the demand in neighborhoods people want? Or only grow in places that people are less keen on, for lack of interest?
A Few Thoughts About Inventory, Including Popular, and Less Popular, Nabes.
Upper West Side
It’s an predicament that directly creates a lack of inventory. The example: A couple raised their three kids in a coop in the West 80’s. They combined two apartments, have about 2000 square feet, including a 1-2 rooms that they don’t really use anymore. They paid off their mortgage and have monthlies of about $4000 per month due to the building’s “maintenance” fees to the cooperative. They would like to downsize, so that they can take some money, and move it into a home in North Carolina, South Carolina, or Florida.
There would be buyers ready and excited to move forward on this at a market price. So no issues around liquidity in the market, or anything. It’s just that when they actually look at the costs of selling (roughly 10%) and what the downsized unit costs, they are flummoxed. Buying a high-floor unit in a decent-to-good location leaves them with about $350-500,000 to buy a home in the Sunbelt. Is that enough to motivate these sellers to act? There are plenty of estate units that come to market, but if people prefer to enjoy the equity and not just pass it along to their kids, these are the realities that keep inventory off the market.
That said, this is a very typical situation, and makes letting go of the homes that people love challenging, since the math doesn’t work out well. It may work when people are upsizing into a market where they can get a bigger space at a lower cost. But trying to extra equity from long-owned properties has been the biggest challenge, and keeps many, many bigger units off the market in the near term.
Sutton Place & Beekman
Sutton Place cooperatives have another issue. More broadly, we’re talking about the East 50’s, mostly east of 1st avenue. Reputationally, these are quiet streets, lovely streets, that beckon those who want to be in the city but have a little more peace. And perhaps get more value for their dollar, since these apartments sell at lower price points often than more centrally-located apartments.
But what has really happened? Buildings in these neighborhoods, like those in many other parts of the city, become Naturally Occurring Retirement Communities, or NORC’s. It’s not that this transition is in and of itself an issue. It’s more that the policies of these co-ops, already calcified and tone deaf to the market, keep buyers away.
Here’s an example: A buyer came to purchase a one-bedroom unit, a listing of ours on Sutton Place. He was all-cash, planned to use the unit as a primary residence, and was willing to do the complete overhaul of the apartment. He had good income and seemed like a nice person. But he was rejected by the coop without an interview. Buyers like this do not grow on trees. Was it that he was divorced? Was it that they didn’t like how he earned his income (through real estate investments)? We’ll never know. But if rejections like this become more common in these buildings, and buyers hear about it, the vicious cycle begins.
Brokers keep buyers away. As visits grow less frequent, listings take so much more time to sell, and at lower prices. I don’t know how this cycle stops, exactly, other than some kind of aggressive takeover of these coop boards, when more rational people can try to make their buildings attractive to a new crop of buyers, bringing new energy and life to the table. All I can say is that see more inventory sitting on the market that represents a great value to new buyers- if they could only “qualify” according to outmoded thinking. I even recently heard that a coop board didn’t really want “kids” in their building. Talk about a way to keep out prospective buyers!
You could argue that we’re seeing this kind of madness on the Upper East Side, too. But I think you have the idea.
5th Avenue Moved to Florida?
I’ve gotten the same questions now for about two years: “Is everyone moving away?” or “Is everyone moving to Florida? I thought it was rubbish- because the amount of listings coming to market didn’t reflect that much moving away. What actually seems to be happening is this. A lot more people seem to be holding onto their properties here, even if they are moving to Florida or wherever. And so, perhaps there is some kind of migration, just of people who have the liquidity to carry two (or more) properties for their personal use. So, even if you see little foot traffic in and out of the nicer buildings on Park Avenue and West, it isn’t likely to mean a batch of new properties coming to the market.
The Backup in the System
I don’t think we should forget what’s happened in the suburbs. If we have a lack of houses for sale this Spring, as has happened for the past two years, then those who want to move out of the city won’t have anywhere to move to. And when that happens, they can’t just sell their home in the city. So we may see a bit less inventory hit the market as a result, too. Alternatively, some sellers could choose to liquidate while they can, and move into a rental while they shop for their new home in Westchester. But with the rocketing rental market- that may end up being less attractive, too.
We’ve been wondering about what percentage of deals are happening off-market. These are units that are not actually being marketed in the same way, publicly. Maybe buyers have moved and don’t want anyone to know. Maybe they want to try to leverage their networks to find a buyer discreetly. From my polling and experience, it seems that about 3% of all deals are happening in this way. If this increases, though, it certainly would keep more properties off the market- and that can’t be helpful to buyer confidence.
And Now? We Wait
It’s going to be a really interesting Spring Season, full of questions about how much new inventory we will see, and in which neighborhoods it will appear. What do you think? With rising mortgage rates and rising rents, there are more than enough reasons to motivate buyers to act now- all we need is some homes to sell them. Until Next Month! -S