Illustration for The Real Deal by Peter BonoLast month, Fredrik Eklund, a Prudential Douglas Elliman managing director who also runs an eponymous Stockholm-based brokerage, was arranging the sale of a $6.5 million Upper East Side triplex to an overseas buyer from Greece.
Given the economic chaos plaguing the Hellenic republic, it may seem unlikely for a Greek buyer to invest millions in New York City real estate right now. But the reasoning behind the purchase was simple: “They have to get their money out of Greece,” Eklund said.
As the European debt crisis continues, wealthy individuals from tottering European economies may be looking to New York City homes as the proverbial “safe haven” for their assets — a good bet compared to erratic global stock markets and residential markets across the pond. And, last month, Senator Charles Schumer, the Democrat from New York, and Senator Mike Lee, a Republican from Utah, joined forced to introduce legislation to encourage more of them to park their money in real estate here. The legislation would grant limited visas to foreigners who invest at least $500,000 in cash in residential real estate in the U.S.
“I don’t think … people are flocking to the States because they’re afraid of the euro collapsing,” said John Cahill, a partner in the real estate practice of law firm Paul Hastings. “But I do think from an investment perspective — which has been compounded by the euro crisis — it just makes investing in a place like New York City all the more appetizing.”
However, in the last few weeks some would-be buyers have become spooked by the debt crisis, as well as the corresponding drop in the value of the euro, and have become skittish about pulling the trigger on New York City home purchases.
At press time, European leaders had reportedly reached an agreement with the region’s banks requiring them to swallow a 50 percent loss on their holdings of Greek debt, averting an involuntary and disorderly default in Greece. The euro hit $1.42, recovering from the tumble it took starting in early September.
However, plans for European banks to raise capital to protect against future sovereign debt defaults and for European governments to more than double the region’s bailout fund to $1.4 trillion remained murky.
“The issue is contagion,” with the situation in Greece, said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics, a Washington, D.C.-based nonprofit that studies international economic policy.
Since Europe’s banks hold a large amount of assets compared to the size of their national governments and national economies, a run on the banks would set off a domino effect, threatening the solvency of indebted countries like Italy or even Belgium, Kirkegaard said.
That kind of crisis will affect high-net-worth individuals, who make up New York’s pool of foreign buyers, “quite dramatically,” Kierkegaard said.
Starting around Labor Day, brokers said, some buyers taking note of the headlines out of Europe, as well as fluctuating exchange rates, adopted a “wait-and-see” attitude. “It can go two ways,” said Richard Tayar, a Florence native and director of Italian property services at Keller Williams Realty who caters to Italians interested in Manhattan properties.
“One way is, people are willing to invest outside of Italy, they want to do it right away, and are ready to buy property here in New York,” he said. They may have funds ready to invest thanks to a two-year-old tax amnesty program that lets Italians repatriate undeclared assets under more lenient penalties, Tayar explained.
But he has also seen that “some people are saying, ‘Let’s wait and see if the currency is going to reevaluate, and then we’ll talk again.'”
Brokers who frequently work with international clients, such as Brown Harris Stevens’ Paula Del Nunzio and Stribling & Associates’ Elizabeth Stribling, said they have not seen an uptick in the number of European house hunters as a result of the troubles in the European Union.
But those European buyers who plan to purchase have changed their habits, either taking longer to bid or submitting lower offers, said Lisa Lippman, a Brown Harris Stevens senior vice president. Eklund, who now sees “more worrisome faces,” said European buyers have more questions for him. In the past they might have closed on a deal in 48 hours, but since the spring, they visit properties several times, he said.
Keller Williams’ Tayar said he has one Italian client who is teaching at Columbia University and recently picked up two apartments in Harlem, one to live in and one to rent out, when the exchange rate was particularly favorable. But another Italian client, who was planning to spend $2 million, decided to hold off when the euro dropped. And a third is considering investing in German bonds rather than in New York City real estate.
“People are nervous,” Lippman said. “People are waiting to see what happens in Europe. They’re waiting to see if it’s going to put us into a double-dip recession.”
Of course, that hesitancy extends across the market, as Stribling noted. “People are either very worried and don’t do anything, or they want to transfer their money into areas they feel are safer.”
Back in Florence and Rome, sales activity is slow, Tayar said, adding that Tuscany-based colleagues are getting numerous inquiries from individuals who want to unload their villas and vineyards. (As of 2009, homeownership rates in the European Union were at 73.5 percent. In the same year, 67 percent of U.S. residents owned homes, although that number has since fallen slightly.)
New York boasts a number of qualities that make it attractive for European buyers, including its relative inexpensiveness and political stability.
In terms of housing costs, New York now ranks seventh among 10 “world-class” cities that compete for global investment dollars, according to a September report from London-based brokerage Savills, which standardized accommodation costs across diverse cities by comparing how much a seven-person executive team would spend on housing in each city. According to the report, the average New York City property costs $998,863, or $812 per square foot — more expensive than the standard property in Sydney, Moscow or Mumbai, but still cheaper than Hong Kong, London, Tokyo, Singapore, Paris and Shanghai.
Meanwhile, in New York, brokers are seeing big distinctions among what buyers from different countries are looking for.
While the bulk of foreign buyers coming from the so-called BRIC countries (the emerging markets of Brazil, Russia, India and China) are shopping for status symbols, buyers from the so-called PIGS (the faltering markets of Portugal, Italy, Greece and Spain) are looking for safe investments, according to Guido Pompilj, founder of New York-based brokerage Vivaldi Real Estate, who works primarily with Italian, but also Asian and South American, clients.
“It’s a parking place for money,” said Patricia Cliff, the Corcoran Group’s director of international sales, referring to Europeans’ tendency toward long-term real estate purchases in Manhattan.
“The European debt crisis has made people in Europe more aware that they want to have something in a different place, some bricks and mortar in an area with a different currency,” she said. But they’re not fleeing to U.S. markets, she added.
Like Cliff, those who work with European clients will no doubt continue to monitor the events unfolding overseas.
“The headlines coming out of Europe are tough,” Lippman said. “People really realize that the global economy is the global economy.”