The Real Deal New York

Mini slowdown in mid-market

Is NYC’s $2 million-to-$5 million sweet spot starting to sour?
By E.B. Solomont | March 01, 2017 07:00AM

Caroline Bass and Jeremy Swillinger

On paper, Jeremy Swillinger’s Upper East Side listing sounds like a slam dunk. The nearly 3,000-square-foot condo on East 72nd Street is in pristine condition and located in a prime neighborhood just blocks from the new Second Avenue subway. Asking $4.85 million, it’s priced competitively at just $1,644 per square foot. 

But the Level Group TRData LogoTINY agent said he’s getting lowball offers as buyers take their time to see what else is on the market. “Buyers are making offers based on where they think the market will be in six months,” he said.

And it’s not just Swillinger who’s having a tougher time brokering deals in this mid-market sector — which is generally defined as anywhere between $2 million and $5 million.

While the price range has been touted as a “sweet spot” by developers and brokers in the last few years, it’s beginning to see a mini slowdown thanks to a plethora of inventory and lingering uncertainty among buyers about where the market is headed.

Late last year, Citi Habitats’ Caroline Bass listed a Tribeca apartment for just under $5 million and saw it sit for five months. The $2 million-to-$5 million market is “caught in limbo,” she said. The product is “not cheap enough to be affordable and not high-end enough or with the ‘wow factor’ to draw the superwealthy.”

“There is a lot of pent-up demand for more ‘affordable’ homes,” she added, noting that studios and one-bedrooms priced under $1.5 million have seen heavy traffic.

While luxury real estate commands most of the headlines, those properties represent just a fraction of actual sales. Between 2014 and 2016, only 8 percent of the city’s 156,324 residential sales topped $2 million, according to a recent report by the city’s Independent Budget Office. Nearly 47 percent of sales, meanwhile, went for $500,000 or less.

As for the mid-market range, the supply-demand equation is tilting in favor of buyers.

There are nearly 1,400 properties listed for between $2 million and $5 million, a 14.5 percent year-over-year jump, according to analytics site UrbanDigs.com. But properties in that price range are sitting on the market for an average of 131 days — more than 28 percent longer than last year.

UrbanDigs.com founder Noah Rosenblatt said the sector is experiencing the same softness that started in the ultraluxury sector back in early 2015.

“This cycle has had a price-specific softening,” he said. “It kind of started at the very high end and started creeping into the lower price points.”

The mid-market range hit a low point last winter and then actually rebounded slightly in early 2017, Rosenblatt said. In addition, contract activity in January for apartments asking between $2 million and $5 million jumped 47 percent year over year.

But despite that bounce, Rosenblatt characterized 2016 as sluggish and said that when all of the data is tallied for 2017’s first and second quarters it’s likely to be weak as well.

“It was a very soft, anemic year, and how soft you were depends on the price point,” he said.

Level’s Swillinger said many buyers looking in this range are hesitating because they think the market will drop further.

“[They] are very conscious of where the economy is going … and there’s still uncertainty in the market and political arena,” he said.

Brokers say there are plenty of discounts to be found in the segment. “We’re not where the market is crashing, but if there are discounts that can be achieved on a transaction, why not?” said Geovanna Lim, principal at Park Avenue International Partners, who works with Chinese and other foreign buyers. “There’s a natural cycle. We’ve been going up and up and up, and now it’s correcting itself.”

Lim and others said the sub-$3 million market is still going strong, particularly units in the $1 million range that appeal to first-time buyers.

Danny Fishman, managing principal of Gaia Real Estate, said that although the segment has slowed like the rest of the market, buyers wrongly assume that developers focused on the sub-$3 million market are throwing around concessions in a desperate bid to move units.

He noted that his “affordable luxury” units are moving much faster than the high-end market. “Even if you have a lot of money and you’re buying a $20, $30, $40 million apartment, there’s no yield,” he said.

Others also argued that despite the slowdown, the mid-market sector cannot be counted out.

Douglas Elliman’s Vickey Barron said the buyer pool for properties under $4 million is still bigger than it is for the ultraluxury end of the market.

“Those are people that not only need a place to live, but investors can come and it’s a safe spot for them to invest,” she said.