The Real Deal New York

The 0.03 percent

Sellers help buyers secure financing

February 01, 2012
By Melissa Dehncke McGill

The 1 percent is alive and well in Manhattan, where the luxury real estate market has generated plenty of headlines lately. With Citigroup chairman Sanford Weill’s pending $88 million sale at Central Park West and a $110 million listing at Gary Barnett’s under-construction One57, the high-end Manhattan market has been impossible to ignore.

This month, The Real Deal talked to some of the city’s top brokers and market analysts to find out what’s behind the splashy headlines. Why is the luxury market doing so well while there’s still softness in the rest of the New York City market — and the rest of the country, for that matter?

Market experts described vast discrepancies within the luxury market. The high-end elite — above, say, $10 million and $20 million — is faring best. Stribling & Associates’ Kirk Henckels noted that some sales are setting new records, with sale prices of $10,000-per-square-foot or more. Yet the middle-luxury market, between $3 million and $8 million, is “a little more flat,” as Brown Harris Stevens’ John Burger put it.

Buyers looking to spend more than $10 million tend to be insulated from economic fluctuations, explained Leonard Steinberg of Prudential Douglas Elliman. These buyers aren’t just part of the 1 percent, he said: “Chances are they’re part of the 0.03 percent.”

Still, there don’t seem to be as many of these überwealthy buyers as there used to be, Henckels said, noting that the depth of the luxury Manhattan market is not what it was at the market’s peak.

For more on how tight inventory is impacting luxury sales, the amount of time high-end sellers can expect to wait before selling their apartments, and what brokers are doing to properly price units, we turn to our panel of experts.

Elizabeth Sample
Senior Vice President, Sotheby’s International Realty

Elizabeth Sample

News broke in December that former Citigroup Chairman Sandy Weill sold his 15 Central Park West apartment and seems to have gotten his $88 million asking price. So what’s going on with activity in the residential luxury real estate market in Manhattan?
The luxury market is on fire. We’ve had some very significant townhouse and condominium sales ranging from $17 to $60 million. We have one of the most expensive apartments in New York that’s asking $60 million at 25 Columbus. We show that two to four times a week. It’s a mix of American and overseas buyers. [Luxury buyers and sellers are] quite resistant to the ups and downs in the market. Every year [since the Lehman collapse, the luxury market] has become much more active. Three years ago, there were billionaires bottom fishing, picking up all the discounted properties. Two years ago, there were a lot more foreigners coming in because of the situation in Europe. Now, everybody is basically out there because prices are going up and the supply is extremely limited.

We’re still reporting on plenty of price chops on super high-end listings. What sorts of price discounts are you seeing in the Manhattan luxury market?
Very little, quite frankly. If anything, I’ve had price increases on several luxury properties. I’ve had sellers turn down as much as $12,000 a square foot. Most of these people in the luxury market don’t have to sell. They are selling because they never use the apartment, or it’s one of five homes and it is too much for them to deal with. … At One57, the new project that Gary Barnett is doing, in one month they are on their third price increase.

What kinds of luxury properties are struggling the most?
Condos absolutely outsell co-ops. We had a glut of Park Avenue co-ops and family apartments on the market that have come down significantly in price. A lot of those were overpriced and were snapped up recently. … There is a niche buyer for unrenovated co-ops. Even if you find something that’s in triple-mint condition, a buyer will usually make modifications. Something that hasn’t been renovated in 40 years will be harder to sell. Buildings that have summer work rules, that is a big deterrent. At 820 Fifth Avenue, it can take three to four years for someone to renovate a 6,500-square-foot home because of the summer work rules.

What’s going on with financing for luxury residential properties in Manhattan? Are buyers opting to finance or are there still a lot of all-cash buyers in the market?
Most of the purchasers are all cash or they have private bank relationships and they get a very good deal if they are financing, maybe 1 percent as a favor from the bank, based on all the other assets they have invested.

Deanna Kory
Senior Vice President, the Corcoran Group

Deanna Kory

What’s going on with activity in the Manhattan luxury market?
The market appears to be stronger relative to the middle and lower ends, which is why everyone is talking about it. What’s most significant is that the ultra high-end is strong — I mean over $20 million. Sales price records are being broken, which is consistent with the potential sale of [Weill’s] penthouse at 15 Central Park West and the possible sale of a $110 million penthouse at One57.

How are prices within the luxury Manhattan market holding up in comparison to the past?
For the $5 million to $10 million market, depending on the property, [prices] are even with six months and a year ago, but higher than two to three years ago. I would say that higher than $10 million is faring the best in terms of absorption. The lower the price, the more the struggle.

We’re still reporting on plenty of price chops on super high-end listings. What sorts of price discounts are you seeing in the Manhattan luxury market?
The pricing for a trophy property is often purposefully outlandish to attract the attention of the press, public and brokers. Over time, if those sellers are at all serious, prices are being dropped. The exception is highly unusual properties, which rarely come on the market.

What kinds of luxury properties are selling best right now?
Top-end, new development condos are doing very well. Condo resales in top buildings are also faring well — but, again, the buildings have to be top-notch. Co-ops on the high end are selling when they have special features such as a fabulous view, great renovation or are in a special building.

Donna Olshan
President, Olshan Realty

Donna Olshan

What’s going on in the Manhattan luxury market right now?
Sales started to struggle in the early summer of 2011 with a perfect storm: A global financial crisis, Congress paralyzed over budget negotiations and a roller coaster stock market. The real estate market can only digest so much bad news. Nevertheless, the prices in the luxury market held up well because of a shortage of inventory among large, good-quality units — particularly condos. The primary cause of the inventory shortage is the fact that there has hardly been any new construction since 2008.

What sorts of price discounts are you seeing?
At $4 million and above, prices were reduced an average of 6 percent from the original asking price before they went into contract.

Which price ranges within the luxury market in Manhattan are performing best?
The market between $4 to $7 million moves quicker than higher-priced properties. The median of the contracts signed in our 2011 reports was in the $7 million range. Townhouses have performed very well, with those priced below $7.5 million moving briskly.

What are you seeing in terms of inventory in the luxury market?
The statistics show luxury inventory with about a one-year supply. That’s a significant improvement from several years ago, when we had a two-year supply.

Are most luxury buyers opting to finance their deals, or are there still a lot of all-cash buyers?
Many of the deals are cash. One reason is foreign buyers prefer to pay in cash. But many domestic buyers still like to finance. With mortgage rates as low as they’ve ever been, it makes sense to get financing, even if it means jumping through hoops.

What is the most worrying trend that you’re seeing right now in the Manhattan luxury market?
Condos trying to act like co-ops, with vast amounts of application paperwork. It defeats the purpose of a condo.

John Burger
Managing Director, Brown Harris Stevens

John Burger

What’s going on with activity in the residential luxury market?
We are in the middle of a market that is generally stable. It’s healthier at the very premium end of the market, and a little more flat in the middle-luxury market, which I define as $3 to $8 million. … Buyers are very well aware through the Internet when the inventory has become stale. The broker websites don’t discuss the longevity of a listing, but the general consumer websites, such as StreetEasy and Trulia, do discuss listing dates. If buyers see that a listing is stale and has sat for a long time at a given price, they consider that confirmation that the listing is overpriced.

What’s happening with average prices within the luxury Manhattan market?
I’d say the luxury market dropped by as much as 20 to 25 percent in the post-Lehman collapse. Now, I think that we are probably off by 5 to 10 percent. In general, we are very close to where we were at the peak of the market. But I don’t think we are quite there yet.

What sort of price discounts are you seeing?
If a listing is priced [responsibly], using three comparables that sold in the past six months, it should sell at the [original] price. But if it’s priced based on the assumption that there will be some impulse buyer that absolutely must have that south terrace, then there is no telling the percentages of adjustments.

Are sellers being more realistic with their pricing these days?
It often depends on the motivating factor behind a sale. Some people have their property on the market and have not yet found another property. A buyer’s broker should always ask the listing broker what the motivation is for the sale. Is it relocation? Is it a move to the suburbs, a change in marital status? The motivation for the sale tends to play a big part in determining what the negotiability of the price is.

What kinds of luxury properties are selling best, and which are struggling most?
The property category that sells the best and the quickest are turn-key, high-end condos in mint, move-in condition. The category of the market that sells the slowest are prewar co-ops in poor condition that have limited light and limited exposure.

Are there still distressed sellers in the luxury market?
For the most part, they have worked through the system. Occasionally, you have sellers who are anxious because they have doubled-up: They have purchased their next apartment, but they haven’t sold the previous apartment. Those sellers are increasingly anxious about the timing. My advice to clients is not to double-up. Get the sale done first and if necessary choose a temporary rental because you will always have one or two good opportunities in any given seasonal market to acquire another apartment.

Kirk Henckels
Executive Vice President/Director, Stribling & Associates

Kirk Henckels

What’s going on in the luxury market?
I divide the luxury market into $5 to $10 million, $10 to $20 million and $20 million and over. In the $20-and-over category, we have seen some remarkable trophy sales. They can be very difficult to price, because these people have more money than they know what to do with and it’s now socially acceptable to spend it. … There is trophy inventory on the market that has been there forever and has devalued itself. If it came on now, I suspect it would sell and would sell at a higher price, but it’s a little late for that.

What’s keeping those trophy properties from selling?
The amount of work needed. They may have flaws. …The quality sells at top dollar very quickly, other things don’t. There are issues like summer work rules in the co-ops or it might not be on a high floor.

What kinds of prices are you seeing?
Price-per-square-foot is way above where it used to be. We are seeing $10,000 a square foot for the really top-of-the-market. We have never seen that before. However, the depth of this market is not the depth that it was at the peak. I would say the trophy buyers are as strong, but there don’t seem to be as many of them because we don’t have as many of the hedge fund people as we did before, and it’s more of a global market than ever. … The super rich want to be in the same places as their friends — London, Zurich and the Riviera. New York is starting to be included in that as the Russians become more comfortable with putting this kind of money here. The U.S. is much more restrictive about tracking money than London or other places, so it’s taken them a while to become comfortable. Multiply that by 100 when talking about the Chinese. … The Chinese are buying $1.2 million apartments for their kids near Columbia or NYU, but they are not dropping $20 million on an apartment for themselves yet; that will take time.

What sorts of price discounts are you seeing right now in the luxury market?
The problem is it’s all over the map. You have one — actually two — that sold for 50 percent less than their [original] asking prices, and then you have a 15 Central Park West where there was no discount at all. How do you analyze that? These discounts are so tied to a specific set of circumstances.

How do you price a luxury property in this market?
If you price off of comps, you might end up seriously underpricing. Our theory is that the property is going to take itself to its own market level unless it’s a property that very few people would want. … Or you price by your gut. Clearly, Sandy Weill priced off Will Zeckendorf, and he was right.

Jonathan Miller
President, Miller Samuel

Jonathan Miller

What does the Weill sale say about the luxury real estate market in Manhattan?
Actually, I see this sale as a one-off transaction, or an outlier that has little or anything to do with the state of the Manhattan luxury market. It sold for more than 30 percent above the previous record in the same building. The luxury market is perhaps the most non-homogenous segment of the market, since the properties tend to be more unique and therefore harder to extract a price trend from.

What are prices like in the high-end market and how is the luxury market faring in relation to the overall Manhattan market?
A year-over-year comparison in median price for luxury sales showed a decline of 4.6 percent to $4.15 million in the fourth quarter of 2011, down from $4.35 million in the same quarter of 2010. … The upper end of the luxury market — those units at $10 million and over — is out-performing the balance of the luxury market. Things are generally better at the top.

How long are luxury properties staying on the market now, on average, and how does that differ from the last few years?
The average days-on-market for a luxury property was 189 days in 2009, 154 days in 2010 and 145 days in 2011.

The high-end rental market has been outperforming expectations. Is it taking buyers from the sales market?
There’s been an odd parallel [that] has been playing out for the past year. Both markets … have expanded because supply has expanded. Luxury sellers who bought at the peak began to offer their properties for rent last year. Potential buyers who were on the fence were exposed to a better quality [rental] product, and chose to rent over buying. But even with that competition, [the luxury sales market] is performing better than the balance of the market.

What is the most surprising trend in the luxury market right now?
The concentration of trophy sales was quite surprising: nine sales at or above $30 million in 2011, three sales at or above $40 million and, of course, the $88 million, $13,000-per-foot penthouse at 15 CPW.

What is the most worrisome trend for the luxury market?
The reliance on the weak U.S. dollar to generate sales, especially for high-end new development. Since many European countries just had their credit rating downgraded, we very well could see a scenario where the dollar gets stronger relative to the euro in 2012, which could temper the pace of foreign buyers who are currently getting a discount for buying here.

Leonard Steinberg
Managing Director, Prudential Douglas Elliman

Leonard Steinberg

How is sales volume doing in the Manhattan luxury market?
People who buy $50 million apartments are not part of the 1 percent — chances are they are part of the 0.03 percent. And there is always a market for the very, very best, just as there is in the collector-car market and the art market.

What sorts of price discounts are you seeing in the Manhattan luxury market?
Too many high-end listings have been overpriced by overzealous brokers or their misguided clients, and deserve price chops. Realistic sellers are rewarded by having their properties sold.

What are you seeing in terms of inventory right now?
There is a shortage of quality, large apartments. The luxury buyer willing to pay premium dollars right now wants it all — not just the Picasso, but the best Picasso.

How long are Manhattan luxury properties staying on the market now?
I don’t rely on a property selling faster than about six months. … But the pace has picked up since two and three years ago.

What’s the most worrying trend you’re seeing right now in the market?
Sameness, gimmicks and lack of charm and character are a worrying trend where so many new buildings feel like last month’s boutique hotel-of-the-month: The luxury market needs more product that is unique, special and substantially luxurious. Getting this right produces not only happy luxury buyers, but also bigger profits.

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