Tracking the townhouse tumble

<i>While sales activity has picked up recently following big drops in prices, some say it's still the most overvalued sector of the Manhattan residential market</i>


Leonard Steinberg, managing director at Prudential Douglas Elliman
It’s not your average buyer who can afford a Manhattan townhouse during the good times. And now, because the wealthy have been hit hard by the downturn and have less purchasing power, the pool of townhouse buyers has shrunk even more.

This month, The Real Deal talked to analysts and townhouse brokers about how one of the most specialized residential sectors of the luxury market (a market that has suffered severely since the downturn started) is holding up. According to one report, townhouses have seen an average sale price drop of 32 percent over the past year.

Some townhouses have seen even greater declines. One broker cited 16 West 12th Street, which was listed for $25 million and ultimately sold for 40 percent less, at $15 million.

Despite those price cuts, another broker said townhouses are still the most overpriced sector of the residential market, joking that there should be a tour called “Overpriced Townhouses in the 70s.”

But activity has picked up in the townhouse market in the last few months, and many of the deals that are closing are all-cash transactions. Brokers say prime areas like the West Village and the Upper East Side are doing better than fringe areas, and that renovated townhouses with broad appeal are selling better than fixer-uppers.

For more on what kinds of homes are faring best and worst and who is still in the market to buy, we turn to our panel of experts.

Leonard Steinberg

managing director,
Prudential Douglas Elliman



What are you seeing in terms of prices for Manhattan townhouses today compared to a year ago and a few months ago?

A year ago we were in the doldrums; probably 10, 11 months ago was the worst. I definitely think there were properties that traded at the time that were discounted probably by about 20 percent. Today they would be discounted closer to 10 percent. I definitely think the market has improved for townhouses.


What is the most challenging aspect of selling townhouses in this market?

In general it’s never easy to sell townhouses because they are a very emotional purchase and it’s matchmaking. You have to find someone who really loves the townhouse to buy it and that person has to be able to afford it. Sometimes it can sell in the first week and sometimes it can take two years to sell. The biggest challenging aspect is if it is not renovated, it has to be priced really low. If it is beautifully renovated and renovated in a style that translates well to the rest of the world, you may have multiple bidders. But if the renovation is done for a specific type of buyer with a specific taste, then it could take a long time.


Who are the buyers you’re seeing (foreign buyers, Manhattanites taking advantage in the drop in prices, etc.)?

I see foreign buyers coming and looking. I don’t see them buying as much, I think because of the maintenance.


What kind of financing are most of the buyers you’re seeing using, and if they are all-cash purchasers, what industries do they tend to work in?

The townhouse deals I’ve been doing have been all-cash and they work mostly in finance. There is some family money and I had someone recently in the art world. There was a sale recently on 12th Street [16 West 12th Street] to a home builder. That house was listed at $25 million and sold for $15 million. That’s a huge price difference. The house probably should have been priced at $15 million. The previous owners bought it for $4 million and probably put in $5 million. Why did they think it was worth $25 million? We all have a dream.


Which Manhattan neighborhoods are doing best with townhouse sales?

The West Village always does extremely well because it is a townhouse environment. In the West Village I am getting some very nice activity on Downing Street, where last year I had virtually no activity, and I am showing raw concrete shells. I don’t even have a finished house to show there. I think the Upper East Side has done pretty well and the Upper West Side really shouldn’t be judged because it doesn’t really have such a huge inventory of single-family townhouses. It’s not very easy to find a renovated townhouse on the Upper West Side. But we just sold one on 76th Street that was an 8,000-square-foot raw shell, and it went for $7.5 million.


Which Manhattan neighborhoods are struggling most with townhouse sales?

I don’t know if “struggling” is the word, but I think Murray Hill — maybe in the mid-40s, the Kips Bay area — is probably a tougher sell. Way further east is a tougher sell because there are so many large buildings surrounding those houses. It’s a different audience and it’s difficult to find beautifully renovated townhouses.


Jonathan Miller

president and CEO, Miller Samuel


Your last market report showed that the average sale price for a Manhattan townhouse was down 32 percent between 2008 and last year. What’s going on with townhouse prices today?

This was a decline that was essentially across the board. The interesting phenomenon, however, is that the prices reached in 2008 were all-time records; meaning that from 2007 to 2008 prices spiked sharply. Not to sound like a Pollyanna, but if you remove ’08, two of the three price indicators are higher than ’07. The average sale price in ’07 was $4.66 million, and in 2009 it was up 7.6 percent to $5 million and change.


So it was more like a correction?

Yes. The townhouse market is 2 percent of overall Manhattan residential sales activity, so it’s a very specific niche market. There is no new construction added to this fixed historic housing stock. As a result, we didn’t see the same rise in prices over the last decade.


What is the most challenging aspect of selling townhouses in this market?

One of the challenges of selling is financing. Essentially by definition nearly all townhouse properties fall under jumbo mortgages — $729,750 and higher. The underwriting guidelines for those are much tougher. But on the flip side you tend to have a higher concentration of cash purchasers, and the mortgage amounts, meaning the loan-to-value ratio, even though I don’t have hard data on it, is clearly lower. [As far as other challenges,] it’s going to be more macro: unemployment, how the Wall Street bonus scenario plays out. Bonuses are up 40 percent, but because of the layoffs, there are fewer people getting bonuses. On top of that, you’re seeing more restricted stock and cash paid out over time rather than in one lump sum.


What’s sales activity been like in the Manhattan townhouse market?

Sales activity was almost unchanged [in 2009] from the prior year — we had 149 sales versus 150 from the prior year. The listing discount of 15.3 percent was up from 8.7 percent. In order for the sale to happen, the seller and buyer have to travel further to meet. More than likely the seller is traveling farther.


What kinds of townhouses are selling best and worst? Are fixer-uppers doing better or are fully renovated properties faring better?

People will pay a premium for fully renovated. When you have weak economic conditions you tend to see more inventory, so there’s more competition. When there’s more competition, the properties in renovated condition tend to see more of a premium, unlike in a supercharged market, [where] you’ll see the spread narrow between unrenovated and renovated.


David Kornmeier

vice president,
Brown Harris Stevens


What are you seeing in terms of prices for Manhattan townhouses these days?

The general rule of thumb I apply is that all prices are down roughly 20 percent from the peak. This value varies according to location and quality of the [property]. I have found secondary markets to see greater losses than primary areas.


We know jumbo mortgages are hard to come by these days and that there are a lot of all-cash buyers in the luxury market. What kind of financing are most of the buyers you’re seeing using?

Most of my deals are all-cash and this tends to strongly motivate sellers to go a bit lower on the price. Buyers obtaining a mortgage now tend to finance 50 percent or less. This is a large turnaround from a year ago, where most of my deals were people putting 20 to 35 percent down.


What kinds of townhouses are selling best and worst? Are fixer-uppers doing better or are fully renovated properties faring better?

Houses that need work or have rent-regulated tenants tend to spend the longest time on the market, but they do trade. Fully renovated houses sell nicely, provided that they have broad appeal.


Can you give us an example of a townhouse deal that you worked on recently or have heard about that illustrates what’s going on in the townhouse market?

My most recent deal was for a West Side townhouse that was originally listed four years ago for $6.5 million with one or two rent-regulated tenants. It’s now in contract for under $4 million and delivered vacant. I represented the buyers on this transaction.


Anne Snee

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senior vice president, Corcoran Group


What are you seeing in terms of prices for Manhattan townhouses now compared to a year ago, six months ago and three months ago?

Townhouse prices are down versus a year ago, but have stabilized over the last six months.


Who are the buyers you’re seeing most in the townhouse market today?

The foreign buyer is definitely back in the market and looking for opportunities. Manhattanites are also looking but with extreme caution.


Which Manhattan neighborhoods are doing best with townhouse sales?

The Upper East Side has experienced the most sales, followed by Downtown.


Donald Correia

senior vice president, Halstead Property


What are you seeing in terms of activity and prices for Manhattan townhouses now compared to a year ago, six months ago and three months ago?

A year ago, our industry had definitely slowed down. Everyone was concerned that the city and economy were doomed. About five or six months ago business began to really pick up, and now townhouse brokers are busier than ever.


Who are the buyers you’re seeing in the townhouse market?

Families that want to raise their children in a townhouse, people tired of dealing with co-op rules. I’m not seeing many foreign investors in the market right now unless they’re moving into the city.


Which Manhattan neighborhoods are doing best and worst with townhouse sales?

I’d say the Upper East Side, Upper West Side and West Village [are doing best]. They’ve always been the strongest townhouse markets in the city, so when the market started to recover, these areas were naturally the first to recover. Harlem and points north [are struggling the most].


Have you seen many townhouses being rented out?

Not really. We’ve had requests to rent townhouses we represent. None of our owners are interested. They want to sell. That said, if I had someone looking to rent a townhouse, I’d be calling the brokers who represent townhouses, especially ones that have been on the market for a long time.


Linda Melnick

senior vice president, Stribling & Associates


What is the most challenging aspect of selling townhouses in this market? And what are going to be the key obstacles in the coming months?

I think pricing. The most overpriced product in the city usually is the overpricing of townhouses. When that’s done it tends to really destroy the value of the property. I always joke that we should do a townhouse tour called “Overpriced Townhouses in the 70s.”


Who are the buyers you’re seeing?

You still have your Wall Street people with a lot of money. We have an open house coming up for a townhouse at 46 East 81st Street. It is single-family, five stories and 20 feet wide, and has a south garden. Anytime you get a new townhouse in this category of renovation, [with this kind of] square footage, there is such a flurry of activity over the first two weeks because there is such a lack of that product. It will be interesting to see who that buyer is, but I would bet dollars to donuts it’s the young families. What was so attractive about the townhouse for the hedge fund guys was that they could keep their money in their hedge funds; their loan-to-value ratio was much greater from the banks on what they were getting because it was real property. That has changed somewhat as they have to put down more than they were putting down before. It was just more attractive to them to keep their money invested than to put it into the home.


What kinds of townhouses are selling best and worst?

All bets are off when you start renovating and need to pull permits. The townhouse is then reassessed according to current market value. There are a lot of townhouse sales brokers that aren’t aware of this. They see the taxes are only $30,000 and don’t realize that there is no limit on where they can be reassessed. They will be reassessed by the city according to comparable property and current market value. I saw one go from $35,000 to about $110,000 and I thought the buyer would have a heart attack.


What is the biggest price cut you’ve seen in the last three months at a Manhattan townhouse?

[There are a few recent examples, like] 55 East 78th, which came on in the fall for $12.5 million and closed in January for $8.5 million. There was one right next door that was beautifully done at 57 East 78th. It came on in February 2009 at $15 million, closed in October and ended up getting $11.5 million.


Have brokers who once specialized in townhouses moved to other, more active areas since the start of the downturn?

I am a townhouse specialist for Stribling but I’ve always done everything. I find that I can’t stay [exclusively] with townhouses because there aren’t enough of them.


Richard Pretsfelder

partner, Leslie J. Garfield & Co.


What is the most challenging aspect of selling townhouses in this market?

The more expensive part of the overall residential market, say over $3 million, has seen a choppier recovery. In addition, many townhouses require renovations, and there seems to be some reluctance in the marketplace to take on projects.


Who are the buyers you’re seeing?

There does seem to be solid interest from foreigners. We’re also seeing savvy Manhattanites, ex-pats returning from abroad, and high-earning professionals like lawyers and doctors who had been priced out of the market during the hedge fund boom years.


It looks like “days on the market” is actually down a bit for townhouses. Why do you think it’s taking slightly less time to sell these homes than it did last year?

A lot of the newer inventory comes to the market priced more realistically and therefore trades more quickly, while older inventory tends to be priced more aggressively.


Can you give us an example of a townhouse deal that you worked on recently that illustrates what’s going on in the townhouse market?

I sold a townhouse on a park block for $5 million in January 2009 in need of renovation. I am now trying to move a similar property in the neighborhood and am challenged to generate offers in the $3s.


Have you seen many townhouses being rented out? Has there been an increase in that phenomenon in the last year or six months?

There is an increase in dual sale/rent listings as owners consider renting to get them through the downturn in the market.


Sofia Song

vice president of research, StreetEasy

What are you seeing with listing inventory for townhouses?

[Our numbers show that] Manhattan townhouse inventory in the fourth quarter of 2009 was 51 percent higher than it was a year prior and 63 percent higher than it was at the height of the market. Central Harlem had the most townhouses on the market with 62 listings, a 45 percent increase since the year before.


What are you seeing in terms of listing prices in the Manhattan townhouse market?

Townhouse sellers are motivated to sell and they definitely don’t appear to be reluctant in dropping their asking prices. Before Lehman collapsed, 29 percent of all Manhattan townhouse listings that were on the market had price cuts, which averaged 10.8 percent. By the following quarter, 37.4 percent of Manhattan townhouse listings had price cuts, averaging 11.3 percent. This most recent quarter, roughly 33 percent of all Manhattan townhouse listings had cuts, dropping their prices even more, at an average of 11.6 percent.


Which Manhattan neighborhoods are struggling most with townhouse sales?

The neighborhoods that had zero closings in the fourth quarter of 2009, where they previously had closings, were Beekman, Murray Hill, Sutton Place, Yorkville and Turtle Bay.


What is the biggest price cut you’ve seen in the last three months at a Manhattan townhouse?


The townhouse at 809 Riverside Drive in Washington Heights had a 25 percent cut back in December of $500,000, and then an additional 13 percent cut of $200,000 in late January.


Have you seen many townhouses being rented out?

There has certainly been a significant increase in the number of townhouses that are up for rent. In the fourth quarter of 2008, there were only 51 townhouse listings for rent in Manhattan, with an average monthly rent of $11,650. A year later, there were 252 Manhattan townhouse listings for rent, with an average monthly rent of $6,350.