Prices getting lonely at the top

Oct.October 30, 2007 10:29 AM

With less than three months left before Wall Street bonuses are distributed, the luxury property market’s slim pickings are prompting some buyers to seek alternatives.

In August, Tristan Harper, a senior vice president at Prudential Douglas Elliman, worked with clients who were willing to spend up to $2 million for a one-bedroom pied-a-terre on Fifth Avenue with a garage and views of Central Park. Unable to find exactly what they wanted, they eventually bought a $1.5 million higher-end condo on Sutton Place with a garage and a view of the East River.

Such clients “shift their priorities. It does happen more than one would think.”

One problem, Harper said, is the lack of new residential construction, which affects inventory numbers, in premium areas.

“There is no new construction on Fifth Avenue. There is no new construction on Park Avenue,” Harper said. So, some buyers “shift their priorities” and settle on a different kind of property.

Daniel Berman, a Bellmarc Realty executive vice president who specializes in the Midtown luxury market, said the issue is not with the inventory, but with the pricing.

“What’s selling is priced wholesale,” Berman said. “Ones that are priced retail are sitting a little.”

At the ultra-high end, most sales property has problems, brokers say. “They’re out there, but not on the absolute best streets, or they’re not particularly wide,” Berman said. “For the cr me-de-la-cr me, it’s limited.”

Brokers who sell exclusively in the ultra-luxury market — where properties command prices of $20 million or more — say their clients are discouraged.

“The frustration is what they want is not on the market,” said Meredyth Hull Smith, a senior vice president at Sotheby’s International Realty. She is the agent for a mansion in the East 70s that reportedly was under contract for $45 million last month.

Smith thinks the supply problems won’t change. “Without sounding silly, there’s never enough of that property. It is recession-proof,” she said.

While supply dwindles, prices keep increasing.

“Numbers in the past that seemed aspirational, with the right product at the upper end, are achievable,” Smith said. “Twenty million dollars is sort of the new $10 million.”

Another broker for the mega-rich, Paula Del Nunzio, senior vice president and managing director at Brown Harris Stevens, concurred with Smith about the state of the housing inventory.

“The inventory at the upper end is not that copious,” Del Nunzio said. “It’s relatively sparse.”

Late last month, Del Nunzio represented Harkness Mansion on East 75th Street, which had an asking price of $50 million. She was one of the brokers that sold the Duke Semans mansion at 1009 Fifth Avenue for $40 million, the highest price paid for a New York townhouse at the time.

“There’s great interest in townhouses at the upper end of the market,” Del Nunzio said. “The present townhouse market is strong but selective, with houses at the upper end fetching high levels, but at varying speeds.”

Jaw-dropping record deals this year are not pulling up the average luxury sale price from last year, said Jonathan Miller, president and CEO of Manhattan appraisal firm Miller Samuel. That statistic is not a meaningful indicator of market conditions anyway, he said, because the subset is so small and prices get so easily skewed.

The luxury market price per square foot hit a record price at $1,842 in the second quarter of 2006, a 7.9 percent jump from $1,707 at the same point last year, Miller said. In the Manhattan market overall, the price per square foot was a record $1,083, up 11.6 percent from $970 for the same period last year.

While all Manhattan units for sale languished in the market longer this year, the pace of luxury sales was quicker.

For the second quarter, a luxury property spent an average of 150 days on the market, compared with 135 for the same quarter last year, a 15-day difference. In the overall market, properties were marketed for 144 days in the second quarter 2006 versus 102 in second quarter 2005, a 42-day difference.

Like prices per square foot for home sales on the northern end of the market, rental prices for the same ilk are pushing price boundaries.

Mark David Fromm, president of residential brokerage Mark David & Company, said at the end of last month that his company had negotiated its biggest rental deal ever — a 10,000-square-foot Manhattan townhouse for $65,000 a month, plus utilities. “I think what’s happening is people are taking a wait-and-see approach,” Fromm said, adding that some buyers are sitting out the market and renting instead.

And the market is accommodating the new class of renters. On a random day late last month, Fromm found 15 buildings in Manhattan with available rental units on the market carrying asking prices in excess of $10,000 per month.

A brand-new six-story rental building at 219 West Broadway between White and Franklin streets was offering three-bedroom, 3.5-bathroom, 3,000-square-foot apartments, one per floor, in a building with a doorman and an elevator, for $23,000 to $28,000 per month, Fromm said. “You used to never be able to find a 3,000-square-foot rental,” Fromm said.

Considering the future of the luxury residential sales market, David Lowenfeld, an executive vice president of World Wide Group, said, “We’re beginning to see some cracks. I believe that the luxury market is going to have a shakeout; not a fallout, but a shakeout.”


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