While much of Manhattan appears to be largely insulated from the subprime loan fallout, some of the city’s emergent areas may show a greater impact from the nationwide crisis.
Data collected by The Real Deal show apartment resales and new development in fringe areas, including Harlem and the Financial District, may be having more trouble than anticipated just months ago. But some areas, such as Long Island City in Queens, are holding up better than others.
As tens of thousands of new apartments become available in the next couple of years, residential brokers are doing some nail-biting as the subprime crisis continues and cuts into the city’s market. But they said they remain optimistic for the most part, until they see how the end of the era of cheap credit resolves itself. Interest rates are still relatively low, but they’ll likely not return to the levels that prompted a buying boom in New York and nationally.
“It may be a bit too early to tell,” said Kara Kasper, a senior vice president at the Corcoran Group who specializes in emerging areas such as Long Island City, as well as Williamsburg, Clinton Hill and Fort Greene in Brooklyn.
Uptown and Downtown swings
One attribute that is distinguishing some neighborhoods is the amount of new development hitting the market. Even as developers begin to pull back on new projects on the drawing board (see sidebar on next page), there are plenty of projects that are already under way and that have started sales. Brokers are closely watching how well pricing is holding up at this point.
When it comes to specific neighborhoods, data provided by residential real estate Web site StreetEasy.com have shown that Harlem, where an onslaught of new development has been in the works, may be seeing some of the biggest price cuts in Manhattan. The Financial District is next on the list.
Both areas have been popular with developers in the past five years, though the level of development appears to be slowing in the Financial District while Harlem appears to be going strong, according to recent condo filings with the state attorney general’s office (also see sidebar).
In Harlem, new development Casa Brava, at 232 East 118th Street, sold well until July, but its three remaining listings have gone through three price cuts, falling an
average of 19 percent, according to Street-Easy.com.
From July 27 to Sept. 25, the latest data available, 3.62 percent of Harlem’s 636 listings were down 5 percentage points in their asking price, and asking prices of 1.57 percent of its listings dropped 10 percentage points.
While the numbers may seem small, they are significant because, though it is largely holding, the neighborhood is the most unstable one in Manhattan with corrections resulting from overzealous developer pricing, according to principals with StreetEasy.com.
The Financial District is faring better, though it is still feeling some pain, according to StreetEasy.com.
“The neighborhood is still seeing price growth,” said Dawn Doherty, vice president of strategic development at StreetEasy.com. “The few price reductions are corrections.”
For instance, at 25 Broad Street, some listings that were once being handled by the developer himself — most likely to save brokerage fees — and not by a brokerage have been lined up for co-brokerage, a
system where brokers work together and share commissions to get properties sold, principals at StreetEasy.com said.
“This development is interesting, because the developer is [Kent] Swig, and he is on the board of Terra Holdings and Halstead, but … he wasn’t actually using a brokerage to market his property,” said Derrick Gross, business analyst at StreetEasy.com.
“What happened recently was they decreased prices, and they let brokers from Halstead and Brown Harris Stevens put listings up,” Gross said.
Swig, president of Swig Equities, is also an owner and co-chairman of Terra Holdings, which owns and operates the brokerages Halstead Property and Brown Harris Stevens. He said that he is still the listing agent for 25 Broad Street for Swig Equities, though both Halstead and Brown Harris Stevens each have four exclusive listings in the building.
Swig defended changing how the project was being sold. He explained, “I own Brown Harris Stevens and I own Halstead, and it makes sense to give the firms that I own the opportunity to sell units.”
From July 27 to Sept. 25, 1.83 percent of the Financial District’s 437 listings were down 5 percentage points in asking price, and 0.23 percent of its listings were down 10 percentage points.
Off on the fringes
As residential buyers find it harder to obtain loans around the country, some of the New York neighborhoods faring the worst are ones just starting to find their bearings, such as Crown Heights and Sunset Park/Greenwood in Brooklyn.
Both neighborhoods have seen hefty decreases in the average asking prices of their listings — and both have lots more new development in the pipeline (see sidebar).
At the same time, outer-borough neigh borhoods just a short hop from Manhattan, such as Long Island City in Queens and Williamsburg in Brooklyn, are weathering the credit storm.
“Long Island City and Williamsburg are really holding in there with numbers like Manhattan’s, because they offer relief [to those priced out of Manhattan] and are a subway ride away,” said Doherty.
Kasper, who said that most of the apartments she sells require “jumbo” loans, or loans of more than $417,000, from which the mortgage industry has retreated, said she believes the tightening market is clamping down on some new development hot spots more than others. Long Island City, which was a commercial area that is now seeing a huge wave of new development, is thriving.
“Really good product that’s priced well sells quickly,” she said. “And I would say bad or boring product that used to sell in some way is having a harder time.”
With an onslaught of new development planning to come to market in the next couple months in Long Island City, principals at StreetEasy.com said it would be interesting to see how well prices hold up.
Developers at Rockrose Development anticipate that their third tower at Queens West, now called EastCoast, which is right on the waterfront in Long Island City, will sell out quickly, though condominium apartments are priced at around $1 million. Even though 30-year rates on jumbo loans have leapt to 8 percent, those for smaller loans have held steady somewhere between 6 and 6.5 percent, said Jon McMillan, director of planning at Rockrose.
“If you’ve got enough cash to put into your $1 million or $1.5 million condo, and you only have to borrow $417,000, you’re not affected by this,” he said. “But if you’re a younger buyer, and you haven’t accumulated this cash, and you need to borrow 80 percent of your $1.5 million condo, you’re going to pay more for your mortgage, and you’re going to have to have good credit.”
McMillan maintained that developers at Rockrose anticipate a more mature buyer purchasing in their newest tower, and therefore believe there will be no problems with touchy credit markets, even though many buyers in Long Island City are young.
“We think [EastCoast] will attract a more established buyer — empty nesters coming in from Long Island towns, retirees, people trading up from other condos who have some cash,” he said.
Other neighborhoods that are farther from Manhattan, such as Prospect Heights, Bedford-Stuyvesant and Bushwick, are feeling a bit of a squeeze, according to data from StreetEasy.com.
But by far, the neighborhoods of Crown Heights and Sunset Park/Greenwood have taken a hit. Sunset Park/Greenwood “is the only neighborhood where pretty much everything is going down,” Gross said. Even so, Crown Heights has seen much greater overall losses in the average asking price of property listings, he said.
Residential developer Eric Brody, a principal at the Brody Group who recently went to market with the Atlantic at 457 Atlantic Avenue in Brooklyn, said he has largely stopped acquiring land in emerging neighborhoods in the borough.
“I’m still actively looking for developments, even in fringe neighborhoods, but they have to be underwritten as a rental and/or you have to create a joint venture with the landowner to develop the property,” Brody said. “That requires a bit of real estate expertise on the part of the landowner.”
But while developers looking for new ventures in emerging neighborhoods in Brooklyn may have some trepidation, real estate brokers in the area said properties are still selling well.
“I have two buildings [Hello Living] on Pacific Street, between Washington and Classon avenues, and they’re knocking the socks off the markets,” said Peggy Aguayo, a principal at Aguayo & Huebener. But that may be because the border of well-heeled Prospect Heights may have crept as far east into Crown Heights as Bedford Avenue in recent years, according to real estate brokers.
Of all the boroughs, the Bronx seems to be an anomaly, suffering the worst plunges in pricing. The credit crisis has hit the borough quite hard, said Joseph Greene, the broker-owner of Weichert Realtors House & Home.
“In co-ops, there’s not been a tremendous effect, because they require 10 or 20 percent down,” Greene said. “But if you’re dealing with houses or condos, where people were doing 100 percent financing with no-doc loans and no credit, it’s over. They were getting free money.”
That means buyers are no longer looking for “fixer-uppers,” but want something in move-in condition. Buyers have lost their “vision,” he said, because they can’t afford it, meaning it’s a good time for skillful real
estate agents and apartment stagers.
“And you need agents who are going to be able to co-broke the listings,” Greene said. “That’s important.”
Still, he said he was optimistic about pricing in the Bronx in the long term.
“In general, since there’s been this drop, I don’t think the prices are going to drop tremendously in the Bronx, because we’ve got so much money coming in,” he said. “It’s really the next borough to be re-gentrified.”
According to data from StreetEasy.com, Riverdale, the wealthiest neighborhood in the Bronx, has seen average asking prices fall by 5 percentage points for 7.58 percent of its 132 listings, and by 10 percentage points for 3.03 percent of its listings. The neighborhood is awaiting the opening of a host of new condominium developments.
“The real test will come over the course of 2008, when over a dozen new condo buildings here in central Riverdale are slated for completion,” said Bradford Trebach, an associate broker and general counsel with Trebach Realty, in business in Riverdale for 33 years. “The big question is how Riverdale is going to absorb the 500 or so new apartments. Certainly, the current purchase market in Riverdale feels robust enough to absorb the initial surge.”