Editor’s note

<i>The rich are more unrealistic than you and me</i>


Stuart Elliott
F. Scott Fitzgerald once observed that the rich aren’t like you and me. (If you are rich, and you are reading this, I guess they are like you, but read on anyway.) For starters, the wealthy are presumably financially savvier than the rest of us. But you wouldn’t always know it by looking at the high-end residential market in Manhattan.

Last month, Houston Rockets owner Leslie Alexander put his 6,000-square-foot unit at the Superior Ink condominiums in the West Village on the market for $39.5 million, after purchasing it a week earlier for $25 million. That’s a mind-boggling jump, from $3,900 up to $6,200 a square foot.

At the same time, the price moved in the opposite direction in a sale at Palazzo Chupi, the iconic pink tower developed by artist Julian Schnabel. There, an apartment closed for 67 percent off its initial asking price. William Brady, a Credit Suisse managing director, bought the unit, his second in the building, for $10.5 million, down from the initial asking price of $32 million.

And that’s on the heels of sellers like Aby Rosen and Michael Lemos, a Greek shipping heir, raising prices on their Upper East Side properties in recent months, in the wake of what has been one of the worst housing markets in memory.

So what gives? Why is there such a big disconnect in that market? It’s hard to imagine the seller of a studio or one-bedroom getting away with such aggressive pricing as Alexander, or offering the same sort of capitulation as Schnabel.

Maybe the rich are different from us, and that’s why prices in the luxury market can be so wacky. Even if you are just talking listing prices, rich sellers obviously believe there are lots of other rich suckers out there who are willing to overpay.

As the oft-quoted — and oft-quoted for good reason — appraiser Jonathan Miller points out in our Q & A on the luxury market, you “tend to find sellers on the high-end are more disconnected with market conditions than the overall market, and that presents a challenge to brokers today. Inventory is still grossly overpriced.” (Also, see our profile on the industry’s most verbose talking heads, which includes Miller.)

If wealthy sellers would get real, it would make for a better and more active market. After all, the high end was a key driver of the Manhattan market in recent years.

But Wall Street fallout or not, many wealthy sellers can still afford to be disconnected. For example, an unnamed Fortune 500 CEO I heard about recently wanted to sell his Downtown loft but kept his price artificially high because his wife had a sentimental connection to the place. Because she had decorated the pied-à-terre from scratch, they would only move if they got a really high offer.

The luxury segment is arguably an inefficient market in other ways, which reporter Candace Taylor explores in part of her entertaining and informative series of stories about “secret” real estate.

So-called whisper listings — properties that are for sale, but not officially on the market — are on the rise. That’s in part because the typically wealthy sellers of these properties don’t want to be seen as unloading their homes because of financial distress. They don’t want to be seen as victims of the stock market or the Madoff or Dreier scandals. To keep up with appearances, they’re willing to accept a potentially lower price because their properties are exposed to fewer buyers. Read more on this, and other kinds of secret real estate.

Meanwhile, in another feature, “Real estate’s bright (and not so bright) ideas,” reporter Sarah Ryley explores some of the most and least promising strategies to fix real estate’s current problems, including resolving the paralysis in another market where there is a lot of disconnect — distressed assets.

Troubled properties haven’t been moving because buyers don’t want to buy at current prices, while owners (i.e., the banks) don’t want to drop their prices to distressed levels. The result: Those properties are stuck in a state of distress limbo.

To resolve the situation, should developers get the same types of bailouts as Citibank or AIG? Or should stalled condo buildings go co-op?

Finally, it was great to see the more than 1,500 of you that attended our sold-out “Distressed Opportunities” forum at Lincoln Center last month.

Considering Lehman Brothers collapsed five days after the prior year’s forum, I’d say we are already on better track this year. While many on the star-studded panel acknowledged there might be further pain ahead for the market (see related story here), the worst appears to be behind us — and surely, that’s something not to get distressed about.

Enjoy the issue.