Last year, the most expensive co-op sale on record occurred in Manhattan, a condo in Brooklyn sold for the highest price ever, and a group of investors paid more for the GM Building than anyone has ever paid for an American office tower. These high-water marks, however, did not define the year that was in real estate.
Residential and commercial brokers say the game changed following September’s financial crisis and the effect on deals will only start to become truly apparent this year.
And so most regard 2008’s records, many of which are listed below, as footnotes, rather than the main stories of the year.
Miller Samuel’s first- and second-quarter 2008 Manhattan market reports for Prudential Douglas Elliman, for example, noted record median sales prices — $945,276 and $1,025,000, respectively. However, according to Jonathan Miller, president of Miller Samuel, the record prices were overshadowed by increases in inventory and decreases in the number of sales throughout the year.
“In the first three quarters of the year, there was a 27 percent drop in the number of transactions,” said Miller. “A lower level of sales is the precursor to a lower level of prices. We saw a market that was seeing modest appreciation or moving sideways.”
Miller said the record-setting median prices in the first half of the year were mostly a product of the “tremendous amount of closing activity in new condos,” particularly high-end ones like 15 Central Park West, and since mid-September, there’s been a “significant” drop in transactions and prices that will be reflected in late-2008 and early-2009 data.
In July, Standard & Poor’s Case-Shiller housing index, which does not include condos or co-ops, lodged a 7.9 percent drop year-over-year for the New York metro area.
Jeff Wolk, president and chief operating officer of Fenwick Keats Goodstein Realty, said transactions in the final months of last year had reached a “virtual standstill” following the turmoil in the financial markets.
“We haven’t seen a standstill since Sept. 11,” said Wolk. “Confidence has been incredibly shaken and at this point, people are taking a wait-and-see approach.”
It’s notable that the record-setting Manhattan co-op sale closed in July. Jonathan Tisch, the chairman and chief executive of Loews Hotels, paid $48 million for a 14-room unit at 2 East 67th Street.
Wolk, however, doesn’t think such sales say much about the market.
“Record-setting prices in a place like Manhattan are always an anomaly because it really doesn’t reflect the full market,” he said. “Will some extravagantly wealthy billionaire or celebrity set a record in 2009? Who knows? I don’t think, however, that we’re going to be seeing record-setting prices for quite some time.”
And Miller believes that such sales are going to be “fewer and farther between,” not only because of the recession, but also because much of Manhattan’s most prized pre-war construction traded in the past few years.
“A lot of the better properties have already been sold,” he said.
Mark Lewis, president of Century 21 New York Metro, said he thought the only bright spots in 2008’s sales market were closings at 15 Central Park West and the Plaza, and Manhattan’s rental market was also extremely weak. “Apartments are renting around 2003 and 2004 prices,” he said. “Landlords are giving away the farm, and very slowly apartments are being absorbed.”
Lewis noted that while all recessions are similar because it seems like they’ll never end, “Manhattan always returns.”
Still, he sees some unique problems in the current market. “The problem is that now there are a lot of holes in the ground that won’t get built,” he said. “Some condo builders can’t even rent their unsold units because the banks won’t let them.”
Those holes in the ground can partially be explained by the run-up to begin construction work before the city enacted changes to the 421-a tax abatement program at the end of June, according to Jeffrey Levine, founder and chairman of Levine Builders and Douglaston Development.
The expiration of 421-a benefits “caused a number of developers to rush in to build at the worst time of the financial crisis,” said Levine. “They spent money, they’re in the ground, and they don’t have construction loans to finish the projects.
“The elimination of 421-a is putting another burden on the new housing development business when it’s suffering. I think it was terrible for the industry.”
In fact, the rush to build under 421-a during the first half of the year may have contributed to a record amount of construction spending in 2008.
In October, the New York Building Congress estimated that city construction spending would set a record of $33.8 billion in 2008, although the trade organization expected to see declines in 2009 and beyond.
The drop-off in building has already started; only three new building permit applications were filed for Manhattan construction projects in September 2008, the lowest number since September 2001, when only a single application was filed.
Levine, who runs both construction and development businesses, said construction costs started decreasing over the summer after rising steadily over the past two years.
Meanwhile, the builder’s development arm, Douglaston, saw the most expensive condo sale ever in Williamsburg this year, when a duplex unit at its Edge development sold for $5.145 million.
There were a couple other residential records in Brooklyn last year: The most expensive condo to ever sell in the borough closed for $7 million at a Dumbo building, and the priciest house sale ever in Brooklyn Heights was recorded when a home on Remsen Street sold for $10.8 million.
Levine said that while he’s proud of the Edge’s record-setting sale, the number of sales overall at the development have reflected current market realities. “Going back two years ago, we lived in a real estate market on steroids. The steroid of choice was the Mickey Mouse mortgage market.
“In July 2007, with the recognition of the subprime demise, we got back to a reality-based housing market,” he said.
“We opened up our sales office [at the Edge] in April 2008. Since then, we have sold 20 percent of the project. Going back a few years ago, that would have been a reasonable amount, if a little less than what we would have wanted.”
Commercial market comes to terms
It was a year of reckoning for the commercial market, too. “We had legacy deals from 2007 that we were able to get done in the first two quarters of 2008, but the second half of 2008, the last six weeks especially, have been brutal,” said Eric Anton, executive director at Eastern Consolidated, at the end of last month. “Lenders have gotten so conservative that even terribly safe deals don’t happen,” he said.
Anton said he believes that 2008 will be remembered for the deals that didn’t get done — such as the sales of Worldwide Plaza, 1540 Broadway, and the Helmsley Park Lane Hotel — rather than those that did.
Others had a less dire take on the market.
“Our market has been defined by pre- and post-Lehman,” said Richard Baxter, an executive vice president at Cushman & Wakefield. “Transaction volume was back to 2004 and 2005 levels. We were coming off two years that were pretty much an anomaly in terms of excess liquidity. It’s certainly returned to normalcy.”
Baxter said that while his firm believes the first and second quarters of 2009 will be challenging, there are “must-sells coming to market where the lenders will want to take whatever losses they want to take.”
The biggest commercial deal of the year was Boston Properties’ $2.9 billion purchase of the GM Building, a price that represented the most money ever paid for an American office tower. “I don’t think they’ll have any regrets whatsoever,” said Baxter. “It’s arguably one of the best locations in the world.”
As the market soured in 2008, the office leasing business started to turn in favor of tenants. “We represent tenants and, unfortunately, to some extent the bad market is helping them,” said Erik Schmall, a senior managing director at Studley.
Studley’s fourth-quarter market report shows a 10.4 percent availability rate in Manhattan, as compared to 7.6 percent a year ago.
Cushman & Wakefield executives said in October that commercial leasing activity in Manhattan was at a five-year low. “Deals are getting significantly more tenant-friendly,” said Schmall. “And I don’t see that trend reversing after Jan. 1.”
2008 records & benchmarks
• A report from PropertyShark.com said foreclosure auctions increased 184 percent on Staten Island and 150 percent on Queens between January and February.
• In the first three months of the year, according to appraisal firm Miller Samuel’s first-quarter market report for Prudential Douglas Elliman, the median sales price in Manhattan was a record $945,276; the average price per square foot was a record $1,289; and the average sales price was a record $1,722,991.
• In May, a group led by Mortimer Zuckerman’s Boston Properties announced that it would buy the GM Building from the Macklowes for $2.9 billion, the highest price ever paid for an American office tower.
• The most expensive condo sale ever in Brooklyn occurred in May, when a penthouse at Dumbo’s Clock Tower building sold for $7 million.
• In June, the Rent Guidelines Board authorized increases on rent-stabilized apartments of up to 4.5 percent on one-year leases and 8.5 percent on two-year leases, the biggest increase since 1989.
• In June, Ikea opened in Red Hook, Brooklyn. At 346,000 square feet, it is the largest big-box store in New York City, according to a report by WNYC.
• According to Miller Samuel’s second-quarter market report for Prudential Douglas Elliman, in April, May and June, the median sales price in Manhattan was a record $1,025,000 and the median sales price of a Manhattan co-op was a record $755,000.
• In July, Standard & Poor’s Case-Shiller housing index reported a record 15.8 percent year-over-year drop for the 20 metropolitan areas it tracks. The index, which does not include condos and co-ops, lodged a 7.9 percent year-over-year drop for the New York metro area.
• The most expensive co-op sale ever in Manhattan closed in July, when Jonathan Tisch, the chairman and chief executive of Loews Hotels, paid $48 million for a 14-room unit at 2 East 67th Street.
• Only three new building permit applications were filed for Manhattan construction projects in September 2008, the lowest number since September 2001.
• In September, the Mortgage Bankers Association released a report saying that nationwide, 9.16 percent of mortgages for one- to four-bedroom homes were at least a month late in payment or in some stage of foreclosure during the second quarter of the year, the highest percentage of overdue loans since the MBA began tracking the statistic 39 years ago.
• On Sept. 29, the Dow fell 777.68 points, the largest one-day drop in history.
• Cushman & Wakefield executives said in October that commercial leasing activity in Manhattan was at a five-year low.
• In October, the New York Building Congress estimated that New York City construction spending would set a record of $33.8 billion in 2008, although the trade organization expected to see declines in 2009 and beyond.
• Brooklyn Heights saw the sale of its most expensive home ever in October when the sale of a $10.8 million house was recorded in city records.
• A $5.145 million duplex sale at the Edge recorded in October was the most expensive condo ever sold in Williamsburg.
• The U.S. consumer confidence index fell to 38 in October, its lowest level in 40 years, from 61.4 the month before, according to a survey by the nonprofit Conference Board.
• The projected cost of the new Yankee Stadium is expected to be more than $1.7 billion, making it the most expensive ballpark in the United States, according to a New York Times article published in November.
• The city’s Department of Buildings reported 19 construction-related fatalities through the end of October in 2008, far surpassing the same 10-month period in 2007, when 8 deaths occurred, and all of the previous year, when 12 deaths were recorded.
• The Department of Buildings issued 72 initial demolition permits in November, 65 percent fewer than the 205 issued the same month a year ago, and a steep decline from the 164 issued in October. The number of demolition permits had risen from 3,386 in 2002 to a high of 6,480 in 2006. The number fell in 2007 to 5,582, and there had only been 2,112 permits issued in 2008 as of the end of November, according to an analysis by The Real Deal.
• In November, the 46-story Trump Soho hotel-condo topped off, making it the tallest building in the neighborhood.
• In December, the New York Times said financier Bernard Madoff’s Ponzi scam might be the largest such fraud in history. Many of the city’s biggest real estate players had money invested with him.