Among the über-wealthy who frequent the Hamptons, they’re sometimes called “playstations,” like the video game system. Yet despite declines in real estate values elsewhere on Long Island, there’s nothing childlike about the prices of these vacation homes.
Indeed, real estate professionals said the prices of vacation homes, particularly at the very top of the market, remain robust and that demand is strong. Like other sectors of the luxury end of the economy, this market seems to be largely insulated from the subprime fallout.
Times aren’t as heady as in 2005, when the Hamptons racked up nearly $4 billion in vacation home sales. But 2007 saw a number of record transactions. For instance, in May, Ron Baron paid $103 million for a 40-acre estate on East Hampton’s Further Lane. The amount was one of the highest prices ever paid for a property in the United States.
“In the first half of 2007, there were more deals over $10 million than there were in the first half of 2006,” said Kevin Sneddon, CEO of the boutique real estate brokerage Project Real Estate. He said that figures for the second part of the year, when the credit woes first began, were not available.
“If you look at the Hamptons overall, the ultra-high-end, which starts at about $8 million, carried the entire market in 2007,” Sneddon added.
Up and down the Hamptons, brokers agreed. Noel Berk, co-owner of the boutique real estate firm Mercedes/Berk, said many high-end buyers pay cash for their properties. “There aren’t that many homes on the market for $20 million to $50 million, so they are bought quickly,” Berk said.
The race to pay premium prices for coveted properties is attributed to an unusual combination of factors that make the Hamptons the playground for New York’s conspicuous consumers.
The first factor has been strong interest from European buyers.
“The ace this year is that the euro is so strong,” Berk said last month. “Many more Europeans are looking in Manhattan and the Hamptons.”
The second factor, according to brokers, is the social value that some wealthy New Yorkers place on owning prime beach-front property. For these people, usually based in Manhattan or Los Angeles, the value of being able to entertain throughout the summer on their own property is so strong that buyers are willing to invest more in their secondary residence than in their primary home.
“If someone has property in both places,” said Sneddon, “the Hamptons property probably costs more, and they are living larger in the Hamptons. If they have, say, $20 million, they may spend $8 million for an apartment in the city and $12 million for the vacation home.”
Or they may spend even more.
Southampton’s Meadow Lane is a prime example. Three properties there sold for more than $30 million this past year, a record for the street. In the last couple months, two more properties there have been listed, for $31 million and $35 million.
“There were eight deals in the vicinity for more than $20 million, and there are three other properties on Meadow Lane that are listed for more than $20 million,” Sneddon says.
But some very high-priced properties may linger on the market, so the volume of sales could drop. Still, that doesn’t necessarily translate into price dips. Sneddon points out that in 2006, even though the total sales volume dropped in the Hamptons by 30 percent, the average sale price increased.
There are some exceptions in the highest echelon of pricey properties, examples of sales stalling for years and prices getting slashed. One of these best-known “white elephants” was Andy Warhol’s Eothen estate, which sold in January for $27 million after spending six years on the market at $50 million, before dropping to $40 million in June 2006.
If there is a weak spot in the Hamptons vacation home market, it’s in the middle market, where prices hover between $2 million to $7 million. The so-called low-end of the market, which starts at $1 to $2 million, is extremely strong because the properties, often on small lots near but not next to the beach, have become exceedingly rare.
While vacation home markets throughout the country have been battered by the subprime mortgage meltdown, which has led to a tightening of credit for homebuyers, brokers in the Hamptons say they haven’t noticed big changes yet.
“You have to jump more hurdles to qualify for a mortgage, so it slows the process down for some people because some of the big mortgage [lenders] don’t have the liquidity they did before the turmoil,” Manger says. “This only affects the lower end of the market because when you get above $4 million, people typically buy with all cash.”
To illustrate the strong interest in the Hamptons, Berk tells the story of an open house held in December for a newly constructed home with walls of glass on a one-acre lot in East Hampton. The home was listed for $5.2 million. Because it was the off-season, brokers weren’t sure if they would get a good turnout. But by the end of the afternoon, nearly 400 people traipsed through the house.
Although nearly half the visitors were brokers, the overwhelming consensus was that by the Hamptons’ gilded standards, the property had been priced to sell quickly.