Foreign buyers say ‘bonjour,’ again

<span style="font-style: italic;">International purchasers starting to return to Big Apple, but in a trickle, not a surge</span>

After shouting a hearty “arrivederci and au revoir” to the New York City residential real estate market last fall, foreign buyers are finally starting to return.

Typical of the trend are the six deals David Perry, director of sales at the Clarett Group, closed with foreign buyers in the four-week period that ended in the middle of last month, and the two contracts broker Darren Sukenik lined up with clients last month, one from Croatia and another from Italy.

“We’ve had two this week, and compared to zero for the last four months, that’s a lot,” said Sukenik, a managing director of luxury sales for Prudential Douglas Elliman.

While brokers report renewed activity from foreign buyers, there are sharp distinctions between this nascent trend and the heady days of 2006 and 2007. Back then, foreign buyers accounted for roughly a third of all new development sales, and about 15 to 20 percent of the total residential market, according to Jonathan Miller, president of the appraisal firm Miller Samuel.

Now, especially as new development is stalling, experts expect foreign nationals to be a far smaller segment of buyers. Brokers say residents of Italy, South Korea, Argentina and Chile are scouting for bargains in the bruised Big Apple, but their return is a trickle, not a surge. So far, overall residential sales in 2009 are down 50 percent from the year-earlier period, and are expected to stay in the doldrums this year.

“It doesn’t begin to replace the buyers knocked out by the credit crunch,” said Miller, adding: “Europeans especially are being hit by the global credit crunch — we’re not seeing carpenters from Ireland coming here to buy $2 million condos.”

Today’s smaller group of foreign buyers is seeking different types of properties than in the past, and they are spending less, brokers say. The difficulties involved in arranging a jumbo mortgage, the kind of large loan often used to finance a pricey home, are skewing foreign buyers toward cash deals. In addition, financial metrics like projected rental income from a property are foremost in buyers’ minds, rather than sexy renderings or trophy addresses.

These factors, plus buyers’ post-boom wariness about new construction, are partly behind the sluggish pace of sales for former foreign-buyer darlings such as André Balazs’ William Beaver House in the Financial District. However, the blogosphere has recently swirled with chatter about foreign buyers mopping up many of the empty condos there.

Rodrigo Nino, president of Prodigy International — now in charge of marketing William Beaver House while former co-exclusive sales and marketer Core Group Marketing engages in a legal battle with the developers over allegations of unpaid commissions — said he had signed contracts with a group of foreign nationals from Spain, Italy and Columbia for 32 apartments at the building for about $41 million.

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“We are witnessing the beginning of real estate 2.0 from the international standpoint,” said Nino. “This is a much more numeric model — now it’s not about bells and whistles, now it’s about real numbers.”

Two or three years ago, many of Jacky Teplitzky’s foreign clients hungered for trophy addresses such as the Time Warner Center or 15 Central Park West. They focused more on getting into a prestigious building than scrutinizing comparables. This year, Teplitzky, a managing director at Elliman, has closed on half-a-dozen deals for less-sparkling addresses. Instead of lofty prices of $20 million and above, all six transactions ranged from $1 million to $3 million.

Likewise, Patricia Warburg Cliff, senior vice president and director of European sales at the Corcoran Group, has also seen demand for glitzy addresses like Time Warner Center decline. Buyers who might have plunked down millions adding a Manhattan jewel to their glittering global real estate portfolios are now skipping the expense.

“I wouldn’t say [these clients have] evaporated, but you really don’t need a fifth home, and hotel rates are down substantially,” said Warburg Cliff.

Some of the new numbers-conscious foreign buyers, including Italians and Koreans, are foregoing slices of swank with stunning views to snap up small freestanding buildings. Known as “taxpayers,” these no-frills buildings with retail, office and residential space provide the autonomy of total ownership and the small-but-steady return of a 2 to 3 percent cap rate. Warburg Cliff recently sold one of these properties, with a restaurant on the ground floor and an office and a few apartments above, in the Flatiron district for about $8 million.

Foreigners’ demand for new construction is lagging overall. But Clarett’s Perry said Sky House at 11 East 29th Street is 95 percent closed, with 15 to 20 percent sold to foreign buyers.

In general, the push to buy into pre-construction has given way to a search for proven properties in established areas including the West Village. Buyers expect to come out ahead thanks to rental income and recession-level prices.

“They are buying signature properties at a major discount,” said Sukenik.

“It’s like shopping the fur department at Saks in the beginning of the season for 70 percent off — that’s their mindset, and they’re right,” he said.