The Real Deal New York

Brexit backlash: A boon for NY?

The political upheaval could shift the balance of power in the real estate rivalry between London and NYC
By E.B. Solomont | July 01, 2016 11:30AM
Paula del Nunzio and Petro

Paula Del Nunzio and Petro Zinkovetsky

Kensington or the Upper East Side? Canary Wharf or Wall Street? Islington or Brooklyn Heights? The modern-day real estate rivalry between London and New York has been going strong for decades, but last month’s “Brexit” vote may have shaken up the game.

Even before Britain shocked the global markets and voted to break off from the European Union, Manhattan residential brokers and real estate lawyers were getting calls from international buyers looking to move investments to New York and away from London.

Midtown-based real estate attorney Petro Zinkovetsky received a phone call from a Russian client looking to do just that.

“He owns very expensive real estate in London [but] he is considering selling it and buying in New York,” Zinkovetsky told The Real Deal. “I expect that in the next few months we will see a huge amount of capital being transferred from London to New York.”

With European markets freefalling in the wake of the vote, the value of the pound dropping and the political landscape in the United Kingdom in disarray, Britain’s housing market is expected to take a hit. How severe the blow will be and how long it will last is, of course, still unclear. (And for opportunistic investors looking to get in when the market is low, now might be the time to buy in London.)

But for most investors uncertainty is the enemy. That means that London’s status as a global gateway city — in which it competes for investment dollars with New York, Hong Kong, Monaco and others — could be in jeopardy. That could be good news for New York at a time when the luxury market here is beginning to soften and concern is brewing about a possible slowdown.

“In a panic, everyone rushes to a safe shore, and that would be New York, now more than ever,” said Brown Harris Stevens’ Paula Del Nunzio.

Compass President Leonard Steinberg — who said U.K. buyers were calling him ahead of the vote — predicted London real estate prices would drop by 5 percent to 15 percent in the coming months. But nothing is certain given the fluid situation: At press time some Britons were calling for another vote and Scottish leaders were mobilizing to declare independence from the U.K.

“This is unprecedented turf and no one knows what will happen,” Steinberg said.

Manhattan brokers who have cultivated international clients spent the days after the vote talking to  foreign clients.

Nikki Field of Sotheby’s International Realty said her European buyers are looking to protect their assets now that London is no longer an option for them.

“Fasten your seatbelts and good-bye summer market hiatus. We should be back to an accelerated buyer’s market by Monday,” she quipped the Friday after the vote.

That take was an about-face for Field, who just weeks earlier told TRD she was finally shifting her focus away from international buyers and toward domestic purchasers (see related story on page 52).

Over the past few years, residential prices in London have outpaced those in New York.

Last year, apartments in London sold for an average of $4,480 per square foot compared to New York’s $2,586, according to Knight Frank. Still, prices have been rising faster in New York, partly because of other uncertainties in London, including the possibility of a mansion tax. In 2014, New York’s luxury prices jumped 18.8 percent while London’s prices grew just 5.1 percent.

The Brexit vote “will generate a period of renewed uncertainty in the prime London residential market,” a Knight Frank report released hours after the vote stated.

“Some demand, especially from investors, will be delayed and in some cases redirected to other markets,” the report said.

Sam Chandan, head of NYU’s Schack Institute of Real Estate, said the Brexit vote instantly “turned on its head” the entire notion of London as a safe haven. And he said it’s not just New York’s residential market that will feel the impact. The city’s core commercial market is also likely to see renewed interest from international players.

“During uncertain times, investors are not looking for appreciation, but capital preservation,” Chandan said.

Still, the Brexit vote is not likely to change any key fundamentals in New York, including the tempered attitude toward new development from banks, said Steinberg, who noted that underwriting is likely to remain conservative for new projects.

In addition, if the U.K.’s exit from the EU has a severe global ripple effect, all bets are off for a New York boon.

But assuming that doesn’t happen, Sofia Song, Douglas Elliman’s executive vice president of data and research, said London’s turmoil could boost gateway markets throughout the United States. “New York and markets like Miami and Los Angeles will become more attractive,” she said. She predicted that New York prices could rise, particularly in the under-$4 million range.

And Stuart Siegel, head of the Engel & Völkers’ New York City office — an international brokerage based in Germany — said some of those investors will come straight from the U.K.

“If I have pounds, my buying power has decreased overnight. If [the pound is] going to go further down, buying U.S. or New York real estate is a pretty good hedge,” he said.