Hunting for value in the Hamptons

Joe Farrell
Founder, Farrell Building Company

The ultra-luxury end has slowed down. Are you finding less interest in homes above $10 million and more interest below $5 million? Yes, the higher end has been slower than normal. But I call the high end $8 million and up. I had a $28 million sale a couple weeks ago, I had a $25 million bid on something I didn’t take three weeks ago, so there’s movement. The numbers have gotten more realistic.

Can you pin that on anything else besides seasonal interest? There are a lot less guys making big money since 2008. [Someone who would have bought at] $10 million then is [looking around at] $5 million now. I’m doing phenomenal between $3 and $8 million, but it has to be a good value. If it’s not, then you aren’t selling it.

Have you tweaked your strategy at all to attract clients? We absolutely have. For about a year and a half, we’ve been adding to our $5 million and lower inventory. We haven’t been adding to our higher end inventory. That’s happening all over.

We’ve heard there’s a move toward tearing down and building from the ground up. Is that something you’ve noticed? It’s more noticeable now because there are fewer vacant land lots for sale — they’ve been bought and developed, so you have no choice but to buy houses. There are thousands of rickety old houses that neighbors would like to see knocked down, because it hurts the value of their homes.

What are buyers looking for in a home? The main thing people want is “new.” Almost every buyer than can afford new will buy new unless they want a historic house. That and location are the biggest things. Locations are getting tough; you’re seeing undesirable places being developed. You’re seeing builders build along the main roads, with road noise. It’s like Manhattan — there are no bad neighborhoods anymore, right?

How are buyers’ wants different from several years ago? People are looking for simplicity. They aren’t looking for as big of a house. [Other than that, it’s] the same basic stuff — nice basements, high ceilings, high bedroom count, outdoor space, a covered porch, a nice open floor plan and modern finishes — no heavy moldings anymore, lighter floors, lacquer kitchens.

What features add the most value to these homes? There aren’t a lot of big lots anymore, so a tennis court adds a lot of value. At least five bedrooms, and finishes that won’t be dated in four or five years.

On average, how long are spec houses on the market? For me, a typical house stays on the market for three to five months, and many are sold before I start building.

Are there any zoning laws or other regulations that you find challenging when building? The town of East Hampton just reduced the size of the buildable square footage on the lots, which is making it tough. The energy efficiency requirements for building permits continuously get harder and [makes it] more expensive to build.

Cody Vichinsky
Co-founder, Bespoke Real Estate

What’s your take on the major drop-off in sales for Hamptons homes priced above $10 million? It’s a matter of supply. If you looked at the inventory levels in the high end, they have dipped significantly there and in some micro-segments. So it’s not a lack of demand for quality product, it’s actually a lack of supply. The biggest issue that I have is buyers who have cold, hard, green cash to spend and really no great places to put it.

Have you marketed these properties differently or shifted your strategy to attract buyers? Our program has pretty much been the same — over the top. I think we spend more money than any other individual broker or firm out there for our listings. Since we are focused on a particular niche of the market, our systems are designed to hold properties for much longer. We are really just advertising rarified assets.

Outside of the price point, what are buyers looking for? Waterfront [properties], good or bad, go — it’s just a factor of price. Beyond turnkey and new construction, a lot of our buyers are looking for properties that can be subdivided or already have multi-lot components for generational planning, estate planning, or as a place to park capital.

Are there any areas that have room for growth — or that are cooling down? Southampton is always the fundamental market; it just has its cachet. Its proximity to Manhattan is still very sound. Historically, it’s been more dynastic, old money, and now their children and their children’s children are coming and breathing new life into the market.

Sagaponack has cooled down. It was definitely the red-hot ticket of the past several years, and there’s been some lofty asking prices, so on paper it’s been slow over the last 16 months. But I think you’re going to see it start to fly again because prices are coming down to realistic expectations.

There are also oceanfront views in Quogue and Amagansett that are starting to make sense, especially as people are being priced out of the primary markets.

Are there any notable commercial projects drawing more people to the Hamptons? There’s been a paradigm shift in the lifestyle offerings in Montauk, particularly in the last four or five years. You have attractions such as Gurney’s on the water that was recently renovated and it’s become one of the hottest hotels on the East Coast. You have Scarpetta Beach, which has a triple-A dining experience. They are consistently booked and the vibe there is just much more [a Manhattan experience] than it is “local fisherman.”

Are people looking for long-term or short-term investments? There’s definitely a view of the Hamptons as a modern-day gold rush. There is an army of people scouring for short-term gain, but that’s becoming much scarcer because it’s saturated by people all looking for the same thing. That short-term profit is dwindling down to zero.

Jon Krasner
Owner, Hero Beach Club and Shagwong Tavern

What do you look for when you’re out looking for property? Visibility, location, and on or close to the water — whether that be on the ocean or facing the sunset. I bought [the Hero Beach property] because it was an extremely unique acre of land right off the beach but just out of the flood zone. I thought it was a special piece of property that would increase in value over the years.

Who are you targeting when you redevelop a hotel or business? I’m 40 years old, so I know the 40-year-old market the best. [We target] the lower 30s to mid-50s. We call ourselves the retired partyers — we still like to throw a couple back, but we’re in bed by 10:30 p.m.

What does your target demographic want in a weekend out in the Hampton? An incredible beach, a clean and relaxing room, a great cold drink and great service. In addition to that, we have what we’ll call a low-level concierge that gives them access to all that Montauk has to offer. Montauk is a little different than the Hamptons: You have your surf beaches, your boating, your sailing, your hard-core fishing and your kitesurfing. We’ll set you up with a surf instructor or we’ll give you a hiking trail map. We’ll steer you in the right direction.

Are there any regulations that are difficult to deal with, such as flood hazard guidelines? Flooding can be, yes. You have to work hand in hand with the town. A lot of people are used to their big real estate projects, and it just works differently in a small town. Just because it’s technically legal doesn’t mean [the East Hampton town board] is going to let you go through. They want to know that you are in it for the right reasons, so don’t expect to milk as much money as possible out of a project in year one or two — it’s more of a long-term investment out there than a quick-money turnaround.

Where do you think is ripe for a new hotel? A lot of the New York market likes new, but you really can’t build any new hotels. The pricing doesn’t work. There is a low supply of rooms and a humongous demand for beds in the Hamptons. A lot of these places should be renovated — I think they need to be. What’s out there is still beautiful; you want to keep the soul of the building
but you want to bring it into the 21st century a little bit, code-wise for safety and comfort-wise.

What impact will the new Montauk bus route have on local businesses? I think the downtown Montauk area will upgrade a lot. The difference between Montauk and the neighboring towns is that Montauk has a lot of neighborhoods and is 70 percent nature preserved. It’s a huge piece of land, and it’s very spread out. I’m hoping people are able to take a bus or bike ride and not have to worry about driving, especially drunk driving.

Susan Brietenbach
Associate real estate broker, Corcoran Group

What’s your take on the increase in sales for homes priced between $1 and $5 million, and a decrease in sales for homes $10 million and above? The first quarter is always kind of slow here, but there’s been quite a few deals happening [since then]. I just closed one for over $10 million in Bridgehampton. Although there is some value shopping going on, there’s some inventory, so it’s actually a good time for people to buy. You’re going to see something much better for the second quarter.

Listing discounts have also expanded. Have you had to go further to meet buyers? The market was overinflated and people want value, so you’re seeing some discounts. I don’t think sellers are losing money — they’re just not making as much as they thought they would.

What are buyers looking for nowadays? They’re always looking for large acreage and to be close to the water, if not on the water. Spec houses have certain amenities they didn’t have a few years ago, like more integrated indoor/outdoor space. A lot of [buyers] live in Manhattan and they want an outdoor kitchen or an outdoor theater.

Are there any towns where you see potential growth, or where you see the market cooling? Bridgehampton and Sagaponack — as long as you’re close to the water or have a unique property they’re all trading. There is an influx of spec houses starting to trade. Everyone saw that little part of the market and these high-end spec houses going for $15 to $20 million. I think that’s what also caused a little bit of a lull, but the sellers reduced and people are buying.

What would you tell someone who is looking to buy in the Hamptons right now? It’s actually a good time to buy. We do have a lot of supply, and prices have come down a bit. Of course, as stuff starts to trade, the spec builders especially get a little more firm, but right now sellers are listening, and they want to listen. That’s what’s driving our market right now — there’s inventory, good value, and they can still be in for the summertime.

Judi Desiderio
CEO and president, Town & Country Real Estate

Because sales have dropped off on the high end, have you had to go further to meet buyers? Everyone has. Every single company will tell you that there are reductions in the market above $10 million.

How does this affect the way you do business? I’ve been through two stock market crashes and several boom markets. This too shall pass, and the high end is doing better now because there are some bargains out there. The second quarter is going to look a lot better. As a broker, I always did better in poor markets because my customer base is investors who buy [when everyone else] is selling and [vice versa]. With Town & Country serving every price range, it doesn’t really matter what price range drives business as long as there is business going on.

Are there any towns where you see potential growth, or where you see the market cooling? I view our market as a consistent performer. We’re surrounded on three sides by water, and if price is dictated by supply and demand, even if the demand goes down, the supply can never really go up too much. That means long term we are going to see an appreciation. There is potential for growth in the Westhampton Beach area and the North Fork because their price points are lower right now.

How does the retail market look right now? The core business districts of the villages have been stable in terms of rents. They’re not at the height of the market and their annual increases are smaller than they used to be. I’ve been seeing that landlords in the city have been offering free rent and things like that. We haven’t really seen that yet, but what we get here is more pop-ups. People feel as though they don’t want to have a store open 12 months out of the year. As someone who lives out here, I hate that, because I want to walk down my main street in East Hampton and see every store open, but I see what it is — retail across the country is suffering.

Are there more restaurants and service-type businesses opening? No, because we have wastewater management issues. In my professional opinion, that is holding back some hamlets. If you look at the most bustling hamlets — [like] Sag Harbor — every third store has some form of wet use, because people want to go and get ice cream cones and walk around. They want to go get cocktails and dinner. Sag Harbor is commerce friendly that way. They also have a sewer system. That’s sorely needed in other villages.

Erica Grossman
Real estate salesperson, Douglas Elliman Real Estate

What do you make of the increase in homes priced between $1 to $5 million, and a decrease in sales for homes above $10 million? The recent trends may be more driven by a significant increase in activity in the $1 to $5 million market, while the $10 million and up market segment has remained consistently active as it was in the immediate preceding period. More buyers in the $1 to $5 million segment have stepped up their activity, which could be a result of individuals experiencing increased wealth via higher stock market performance and a sense of urgency to purchase homes and lock in financing at lower rates as general market perception is increasing interest rates. 

How does this affect the way you do business? The movement in the market and the increased or decreased activity in one market segment versus the other doesn’t affect the way I do business. It may affect, however, where I am seeing better results and, in turn, commissions. That said, in order to generate new business and keep existing clients, I believe it is important to have a sense of the entire Hamptons market, touching upon all market segments, from pricing and location to new vs. existing homes.

Is this a reflection of what’s happening in New York City’s residential market, where condos in the $1 to $3 million range are selling but there is a bit of slowdown in the luxury market? Outside of this new development offering, the majority of the trades occurring in the high-end luxury market in the Hamptons are “re-sales” of existing homes, many of which are trading for land value. In New York City, new development projects are creating buildings of 30 to 200 units, with as much as 20 to 50 percent of those units being priced in the high-end luxury market segment. Since the Hamptons are in large part driven by secondary home sales and because it’s the same buyer pool as in the city, I believe the trends correlate. That said, with the amount of wealth in both the city and the Hamptons, large deals can always occur at any time, so it’s important to understand the trends and the trades being experienced in each of the marketplaces, in each of the market segments.