Broker Howard Margolis in his $29.5 million listing at the Park Millennium
Broker Howard Margolis in his $29.5 million listing at the Park MillenniumIn October, three penthouse condos at Soho Mews — priced between $7 and $10 million — went into contract. The apartments, one of which sold to pop star Justin Timberlake, were not new to the market. In fact, they’d been on sale for three years, ever since developer Albert Laboz began marketing the new condominium in late 2007.
The sudden movement isn’t a fluke. Brokers say they’ve seen a spike in activity at the very top end of Manhattan’s market. In the past few months, developer David Winter paid $26 million for the fifth-floor apartment at 778 Park Avenue; a buyer signed a $40 million contract to purchase developer William Zeckendorf’s 41st-floor spread at 15 Central Park West; and an unfinished penthouse at Superior Ink sold for $31.5 million.
“I’m seeing more activity in the high end in the past 30 to 60 days than I’ve seen all year,” said Howard Margolis, an executive vice president at Prudential Douglas Elliman who is currently listing a penthouse at the Park Millennium for $29.5 million.
The surge comes at a time when the rest of the market has slowed down for the winter, amid high unemployment and fears of a “double dip” recession. It’s a marked change from 2009, when the first-time homebuyer tax credit spurred activity at the lower end of the market, while the super-luxury segment was largely dormant. Now, jet-setting billionaires again have their sights set on Manhattan real estate, and they aren’t afraid to pounce.
“This recovery started from the bottom,” said Kirk Henckels, executive vice president and director of Stribling Private Brokerage. When it came to luxury, “there really wasn’t a market until quite recently.”
Big-ticket purchases are chicken soup for the real estate soul, but their arrival is having an odd impact at a time when much of the market is slow. Wealthy buyers, many of them European, Asian or South American, are competing for the limited quantity of triple-mint trophy properties on the market. As a result, demand for these trophy properties are skyrocketing, while sales of the mid-range apartments that make up the meat and potatoes of the Manhattan market are lagging.
To succeed in this environment, brokers are tailoring their strategies to capture more of the superrich market, and some say the result is a “gorge and starve” phenomenon.
“Because there’s such a shortage of those super, trophy properties, I think pricing on those properties could escalate dramatically compared to the rest of the market,” said Leonard Steinberg, a managing director at Elliman. He continued: “What’s happening in real estate is probably a reflection of what’s happening in the world: The middle class is diminishing. You have a much larger lower-middle class, and a much larger wealthy class.”
With unemployment still above 9 percent in the city, the overall Manhattan market has been cooling since the summer. According to the real estate analytics website Urban Digs, there were 801 newly signed contracts in November, down from 910 signed deals in November 2009.
Appraiser Jonathan Miller, CEO of Miller Samuel, said the slowdown is due in part to the return of normal seasonal patterns after 2009’s tumult. But the low end of the market in particular is now suffering, after 2009 saw a higher-than-normal proportion of entry-level buyers taking advantage of price drops and the first-time homebuyer tax credit. Now, “the pent-up demand created by that has ebbed,” leaving the entry-level market “weaker now relative to the upper end,” Miller said (see “Ending the year with contradictions”).
In the fourth quarter of 2009, 17.9 percent of the apartments sold in Manhattan were studios, while only 2.3 percent were four-bedrooms, according to Miller Samuel. By the third quarter of 2010, the percentage of studios sold shrank to 8.9 percent while the percentage of four-bedrooms rose to 3.9 percent.
As the uncertain economy drags on, many middle-income New Yorkers are reluctant to purchase property. “In this type of environment, the rich always have money and they’re going to spend it,” said Mitchell Hochberg, a principal at Madden Real Estate Ventures. “Working people aren’t as confident in their bonuses, aren’t as confident in what they’re going to see [this] year, and are less likely to make a major purchase.”
Meanwhile, recent months have seen a spike in activity on the very high end of the market. In 2009, there were only four co-op sales over $20 million, Henckels said, down from 26 in 2008. As 2010 wound down, six such sales had closed and at least three more were in contract, he said, including Zeckendorf’s reported $27 million purchase of the late Bruce Wasserstein’s 927 Fifth Avenue co-op.
One reason for the increased momentum, Henckels said, is that the post-Lehman taboo on ostentatious spending seems to be fading.
“Initially, after the collapse of Lehman, the whole concept of luxury changed,” he said. “Certainly, conspicuous spending was not cool. But now the superrich seem to have relaxed on that. Nobody likes to be denied their toys for too long, and so they seem to be back in the market.”
There are other reasons the wealthy are now buying real estate. For one, booming economies in China, India and South America are creating new opportunities for wealth among international buyers. And after a period of uncertainty following the Lehman Brothers collapse, these buyers now view the New York market as a safe investment again.
In the past month, “we’re seeing an influx of new international interest,” said Brown Harris Stevens’ Richard Wallgren. At 15 Central Park West, where Wallgren lives and has become something of a broker specialist (see “Meet 15 CPW’s broker specialist” and “Denzel’s new neighbors”), he said there has been a recent uptick in interest from Russian and South American buyers.
These buyers want truly special properties — often at least 4,000 square feet, with terraces and views, usually with a price tag of $10 million or more, Steinberg said. But the inventory of such properties is rapidly shrinking, especially with the slowdown in new condo construction since the recession. The result is what Steinberg calls “billionaire inflation.”
“When you have this global market of really, really wealthy buyers expanding, the demand outstrips the supply,” Steinberg said. An example is Zeckendorf’s penthouse sale at 15 Central Park West, which clocked in at just under $10,000 per square foot — a record and far above the average price per square foot in the building.
These market conditions create unique challenges for brokers. As the superrich become more important in the marketplace, brokers are competing to capture their business, even as the supply of suitable properties dwindles.
“It’s very, very difficult right now because there are many people competing for these prized properties,” Steinberg said. “The short supply makes it very competitive among the brokers who have this type of clientele.”
Margolis said because of the renewed interest at the high end of the market, “I work a lot harder.
“I’ve ramped up my business in terms of meeting with more people who potentially buy and sell high-end properties,” he said. For example, he is currently working with Jazz at Lincoln Center to bring two famous musicians to his Millennium listing for a concert.
The new environment also means brokers may do fewer deals in between paychecks. When it comes to rentals, for example, commissions in late 2010 “soared” in comparison to 2009, but there are fewer deals, said Bond New York’s Bruno Ricciotti.
“We’re in more of a gorge-and-starve environment than we were [in 2009], where you were doing small deals every few days,” he said. Now, “there are greater gaps between paychecks for agents, but when they get the checks, there are large checks.”
That isn’t easy for agents, he said, especially since commissions still aren’t as high as they were during the boom. “Anytime there’s that kind of environment, I think it’s more stressful,” he said. “You panic and start saying, ‘When’s the next time I’m going to eat?'”