Two record-breaking residential sales took the real estate industry by surprise last month.
In early November, a mystery buyer signed a contract to pay a whopping $40 million for William Zeckendorf’s 41st-floor apartment at luxurious 15 Central Park West, the New York Post reported. At more than $10,000 per square foot, the sale will set a new Manhattan record when it closes.
Then, entrepreneur Mark Shuttleworth reportedly closed on a $31.5 million penthouse at Superior Ink, setting another record — this one for the priciest apartment sale below 14th Street (see “NYC’s priciest pads”). The unrenovated apartment belonged to Houston Rockets owner Leslie Alexander, who paid $25.46 million for it in 2009.
Why this rush of high-priced deals at the end of an uncertain year?
One factor is Congress’ upcoming decision on whether to pass an extension of the Bush-era tax cuts for high-income earners. If the tax cuts are not extended, long-term capital gains tax could spike in 2011. That scenario is creating anxiety for the very wealthy, said Nikki Field, senior vice president at Sotheby’s International Realty.
“There is a great deal of concern from sellers regarding the capital gains tax increase in 2011,” she said. “The anticipation of a tax increase has led to motivation by many sellers, who want deals closed by Dec. 31.”
Another factor is that very high-end sales “feed off of each other,” said Jonathan Miller, the president and CEO of appraisal firm Miller Samuel. When a very pricey sale makes headlines, owners of high-end homes are more inclined to list their properties, believing they can get a good price.? While it’s tempting to conclude that these eight-figure deals mark a return to market health, Miller said that “trophy” purchases are largely exempt from the conditions that drive the rest of the market.
“The trophy segment is not representative of the market as a whole,” he said, noting that sales over $10 million make up less than 1 percent of residential transactions in the city.
Until recently, for example, the highest-priced sale at 15 Central Park West was in the mid-$6,000s per square foot, he said.
The Zeckendorf sale had more to do with one billionaire’s desire for the right apartment — apparently with little regard for the price — and less to do with fair market value, he said.
“It is an anomaly,” Miller said, adding that the same goes for the Superior Ink sale. “It’s so far removed from the high end of that market — you can’t say the market has increased 50 percent.”
Still, these trophy sales are good for morale. “It doesn’t hurt to have people buying multimillion-dollar properties,” he said. “It does suggest that someone is willing to put a substantial amount of money into this market. I see that as a positive from a psychological standpoint, but I don’t see it necessarily as a statement of a housing recovery.”
And despite these massive purchases, overall market activity has continued to slow down. “We’re seeing less urgency,” Miller said. “The pace has definitely cooled since summer.”
One reason is the continued national economic malaise. In addition, many people “bought in over the last year to take advantage of the drop in prices,” Miller said. “That frenzy has been played out. I’d characterize the market as still weak, but far better than last year.”
As the economy continues to suffer, real estate brokerages are experiencing another round of pain. The Real Deal reported last month that real estate firm Blackstone Properties — once a significant player in the Lower Manhattan rental market — has now closed all of its offices, and scaled back its brokerage activities. At its peak, the firm had some 80 agents in five offices. Now, it has only 18 agents and no offices.
Meanwhile, the midsized rental and sales firm Century 21 NY Metro has also run into hard times. The company has had trouble paying its agents, The Real Deal has learned, and CEO Marc Lewis has been shopping for investors to help the firm stay afloat. As the magazine was going to press, it looked liked Lewis had cut a deal for his firm to merge with boutique brokerage A.C. Lawrence.
A number of firms went out of business in the months following the Lehman Brothers collapse, while other companies closed offices to cut costs. But it’s been a while since Manhattan has seen a firm shut its doors. These problems may be resurfacing now because the economy hasn’t improved as fast as some had hoped.
The real estate industry grew exponentially during the boom. But in today’s far more difficult climate, there isn’t enough business to keep everyone afloat.
“If we continue to see a modest level of activity like we’ve been seeing, there’s going to have to be some paring back,” Miller said.
Firms that have been scraping by, hoping to see a significant pickup in activity, have been disappointed. Instead, the market “ended up leveling off,” Miller said. “There’s only so long they can last.”